Renewed concerns about China’s appetite for iron ore has sent prices for WA’s biggest export earner tumbling to six-month lows, potentially setting the scene for a retreat into double figures for the first time in more than a year.
Singapore futures for the steel-making commodity shed 4.6 per cent on Monday to $US111.55 a tonne, as traders re-evaluated short-term demand from China’s property industry amid rising stockpiles in the country’s ports.
Iron ore is now down about 18 per cent for the year, having hit nearly $US144/t in early January.
It is still averaging a historically healthy $US121/t for the 2023-24 financial year, well up on WA Treasury’s revised December forecast of $US104.20/t.
If prices held current levels until June 30, the State Government’s forecast $3.7b Budget surplus would be swelled with up to $1.3b of additional iron ore royalties.
However, disappointing Chinese demand suggests more short-term trading volatility.
Traders have yet to see the recovery they had envisaged from China’s bellwether property construction industry after the end of the Chinese Lunar holiday in mid-February.
There is also the added concern of rising iron ore inventories on Chinese wharves, which have swelled 32 per cent since October.
Overlaying the uncertain sentiment about iron ore is scepticism around China’s ambitious 2024 economic growth target of about 5 per cent, given its local government debt load, the weak property market and sluggish consumer spending.
Federal treasurer Jim Chalmers acknowledged the concerns on Monday but he is confident iron ore and other Australian resources commodities will continue to play an important role in China’s economy.
“China is investing quite substantially in the energy transformation and if you think about some of our commodities, iron ore that becomes steel, for example, that’s very important to the huge investments they’re making in things like wind turbines and the like,” Dr Chalmers said.
Australia’s second biggest iron ore exporter, BHP, also isn’t winding back its supportive outlook.
The group’s chief economist Huw McKay told a business summit hosted by the Australian Financial Review in Sydney that it was a mistake to inflate the importance of China’s property sector on iron ore prices.
“Real estate has shrunk to be a relatively small element in the total steel demand story,” Mr McKay said.
“You have to separate the general macroeconomic discourse on China from what’s going on in the sectors that matter most to Australia.
“We had record iron ore imports and consumption in China last year, despite the fact that property was absolutely depressed.
“(Property) is a very big part of the economy, but the other 90 per cent which isn’t property have a very good shot at offsetting weakness elsewhere and having a decent year, as they did last year.”
Source Agencies
