Home / Commodities / Commodity News / Australia’s iron ore price slumps after China move

Australia’s iron ore price slumps after China move

Iron ore prices have dropped under $US200 a tonne for the first time since May as Australia’s biggest buyer China threatens to reduce its orders while diplomatic relations between the two countries remain frosty.

The price of Australia’s most valuable export commodity slumped by 3 per cent to $US195 ($A264) a tonne, with concerns China is accelerating measures to reduce its dependence on Aussie iron ore.

Chinese policymakers have flagged a move to cut its steel outputs in the second half of this year, partly to reduce carbon emissions.

But in the near future, it would be very challenging for China to move away from its more than 50 per cent dependence on Australian iron ore, noted Commonwealth Bank’s mining and energy economist Vivek Dhar.

“Over the medium term, China could reduce its dependence on Australian iron ore by increasing iron ore imports from other countries, boosting domestic iron ore supply, increasing scrap steel usage and reducing steel production altogether,” he said.

“The last two measures are likely to happen regardless of Australia China tensions.”

Iron ore is critical to Australia’s economy. Treasury predicts the value of the market will jump from $103 billion last year to $136 billion this financial year.

But China is “deeply unhappy” with the fact the country has limited options when it comes to iron ore, said Michael Shoebridge, director of defence, strategy and national security at the Australian Strategic Policy Institute.

“I think that the Chinese government wants it steel makers to diversify but that’s easier to say and hard to do. They will try and use more domestic steel and iron ore, but the quality and nature of that is a just a big cost driver, that is something the companies don’t want to do and undercuts their market position. I can imagine the Chinese government trying to force a collective pricing on their steel companies but they have had real trouble doing that to date,” he told news.com.au.

“I think global iron ore supplies will keep giving them limited options. Getting Brazil up to scale reliability is very difficult and even if they are bringing on new African deposits, it can’t replace the competitive price and level of volume that Australian miners have.”

While China will do its best to follow through with the threat to reduce its iron ore orders, it will be hard with the scale of construction still planned in the country, said Mr Shoebridge.

“They really resent the dependency and resent the price of iron ore. But when you look at what they are still doing and the scale of urbanisation that is still going to happen over the next couple of decades – they are still putting hundreds of millions more people in cities and cities are based on steel and concrete and their export engine still requires steel too, so they can’t get away from needing iron ore,” he said.

“Australia’s investment in large-scale production means little escape for China from Australian supply. There is a reason the Treasury puts projected prices in of $US50 [$A67] a tonne as it knows the current price levels can change markedly, but the good news is Australian miners remain profitable even below $US50 [$A67] a tonne.”

Mr Shoebridge called on Australia to shore up its own future and diversify what is does with its iron ore, such as using renewable energy to make clean steel by partnering with countries like the US, Germany and Japan, rather than China.

“That sounds hard to do, but the more the Chinese government wants to use market access as a weapon the more other economies will work around that,” he said.

“Climate change is also an opportunity to change the driver of steel and these sound kind of aspirational, but the speed of technological change and increasingly corporate focus on climate change makes these aspirations more realistic.”
Source: news.com.au

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping