Fears continue to stir over plunging Iron Ore Prices as they fell to $145.50 USD/T, down from over $190 USD/T at the beginning of the month. Will the plunging Iron Ore price drive Australia’s resource and export dependant economy into recession?
Concerns that plunging iron prices, and reduced export demand, could drive Australia into a recession are not unfounded. As the latest GDP figure was dragged down -0.7% by declining exports of goods and services, of which 3.7% was due to a fall in mineral ores. While a fall of -0.7% might not seem significant Australia’s GDP only grew by 0.7% (ABS, 2021) during the June quarter with a significant portion of that suspected to be the result of our government purchasing vaccines.
Australia is the largest exporter of Iron Ore in the world, exporting over 54% of the worlds Iron Ore, followed by Brazil at 18.5% and then South Africa at 5.41%, according to OEC 2019 data.
China’s demand for Australia’s Iron Ore is insatiable, consuming over 80% of our Iron Ore Exports. Australia’s economy is significantly dependent on Iron Ore Exports. 24 % of the Western Australian Government revenue was from Iron Ore alone. As such any potential threat to our ongoing export relationship with China is concerning.
Tensions between China and Australia continue to worsen, with the Global Times reporting on the 18th of May that “Chinese Foreign Ministry spokesperson Zhao Lijian said that the Australian government needs to listen to rational voices and abandon its cold war mentality and ideological prejudice.” (Global Times, 2021)
Trade tensions between China and Australia are also growing as the list of tariffs on Australian goods gets longer, making alternative sources more attractive. With the Global Times reporting, that
“Australia shipped more beef to China than the US until April. In May, the pattern reversed, and the US sold $90 million of frozen beef to China, nearly twice the amount of Australia’s sales”
(Global Times, 2021)
While The Global Time is attempting to paint this as a betrayal between allies, we must remember that the Australian Beef Cattle Herd is still recovering. China also suspended imports from six Australian Beef Suppliers as reported by 9 News on the 8th of December 2020 (Pearson, 2020), which is undoubtedly playing a part in reducing exports. The Department of Agriculture even predicted a fall in export earnings back in 2019 ‘as both our herd and flock rebuilds with prices to remain high due to demand from China’. (ABARES, 2019)
So with plunging Iron Ore price, escalating trade and political tensions with China, is it time to sell all of our Iron Ore Stocks in Fear and run from the market with our tails between our legs?
| Company | Price | Market Cap | Change | Employees | P&E | Beta |
| RIO TINTO LIMITED (XASX:RIO) | $ 108.65 | $ 166,922,400,000 | -0.68% | 47,474 | 7.30 | 0.52 |
| MOUNT GIBSON IRON LIMITED (XASX:MGX) | $ 0.57 | $ 677,148,700 | -0.88% | 355 | 10.44 | 0.63 |
| FORTESCUE METALS GROUP LTD (XASX:FMG) | $ 20.71 | $ 64,658,260,000 | 1.87% | 10,164 | 4.57 | 0.67 |
| IRON ROAD LTD (XASX:IRD) | $ 0.22 | $ 162,891,000 | 4.88% | 2 | 25.00 | 0.87 |
| BHP GROUP LIMITED (XASX:BHP) | $ 41.94 | $ 222,525,800,000 | -6.86% | 31,589 | 15.15 | 0.92 |
| MINERAL RESOURCES LIMITED (XASX:MIN) | $ 53.29 | $ 10,021,880,000 | 0.36% | 2,347 | 7.89 | 1.19 |
| GRANGE RESOURCES LIMITED (XASX:GRR) | $ 0.58 | $ 700,189,900 | -4.13% | 581 | 2.04 | 1.26 |
| BCI MINERALS LIMITED (XASX:BCI) | $ 0.47 | $ 290,792,000 | -4.12% | 12.06 | 1.29 | |
| CHAMPION IRON LIMITED (XASX:CIA) | $ 5.69 | $ 2,969,179,000 | 0.18% | 5.62 | 1.87 |
The recent performance of listed Iron Ore companies remains strong, with reports of massive profits and generous dividends, combined with recent experience that our government will take steps to support the economy, fears of a recession may prove unfounded. While the growing animosity from China may simply be flamed by the media while also encouraging exporters to explore new markets. For the time being, at least, perhaps practising some patience would be the wiser virtue?
References
ABARES. (2019, 7 18). Exports to fall as herd and flock rebuild commences. Retrieved from www.agriculture.gov.au: https://www.agriculture.gov.au/abares/news/media-releases/2019/exports-to-fall-herd-flock-rebuild-commences
ABS. (2021, 09 1). Australian National Accounts – June 2021. Retrieved from Australian Bureau of Statistics: https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release
Fortescue. (2020). Media Gallery – Herb Elliott Port. Retrieved from Fortescue Metals: https://www.fmgl.com.au/in-the-news/media-gallery/images/default-source/media-gallery/herb-elliott-port?itemIndex=9
Global Times. (2021, 5 18). Australia is to blame for suspension of economic dialogue: NDRC. Retrieved from Global Times: https://www.globaltimes.cn/page/202105/1223749.shtml
Global Times. (2021, 08 27). The US surpasses Australia in beef exports to China, what’s next? Retrieved from The Global Times: https://www.globaltimes.cn/page/202108/1232614.shtml
OEC. (2021, 09 02). OEC. Retrieved from Observatory of Economic Complexity: https://oec.world/
Pearson, N. (2020, 12 8). China suspends imports from sixth Australian beef supplier. Retrieved from Nine News: https://www.9news.com.au/national/chinese-beef-imports-export-ban-meramist-caboolture-abattoir-trade-war-china/ac284c3d-baec-4d57-b9a8-e5066666b31f
TRADING ECONOMICS. (2021, 09 02). Iron Ore. Retrieved from Trading Economics: https://tradingeconomics.com/