China’s troubling sign for Australia

One of Australia’s top weapons against widespread economic hardship is being tested by a worrying situation in China.

When the global financial crisis hit in 2008, one of the main strengths that pulled Australia through without the hardships seen elsewhere in the world was the abundance of natural resources.

The most lucrative of all these resources – iron ore – is mined primarily in the red soil of the Pilbara region of Western Australia, pumping an astronomical amount of money into the Australian economy.

It is the cash cow that continues to give for Australia, as the export value is estimated to have increased from $103 billion in 2019-20 to $149 billion in 2020-21 — reaffirming our position as the world’s largest exporter of one of the most important minerals to the global economy.

It is important because it is used to make pig iron, one of the main raw materials for making steel used in every aspect of our lives; from cars and construction products to refrigerators and washing machines.

It is also by far Australia’s largest export, with most of it shipped to China, which consumes a whopping 61 percent of the world’s iron ore.

However, there are worrying signs for Australia coming out of China as the world rushes into a new era of high inflation and interest rates, putting the global economy at risk of recession.

The price of iron ore fell to its lowest point since the first week of December on Wednesday, after deep concerns about steel oversupply in China rocked the market.

Benchmark iron ore in September on China’s Dalian Commodity Exchange fell a whopping 5 percent to 716.50 yuan ($106.67) per tonne, extending losses to a ninth consecutive session to hit the lowest since March 1.

China wanted to recover quickly from last year’s pandemic, which, along with supply problems from other iron ore producers such as Brazil, has contributed to the price of iron ore going through the roof. In May last year it hit a record over $230 ($A296) per tonne

Much has changed in the world since then, but China has not given up on its dream of eradicating Covid and investors are concerned about the superpower’s ability to spark an economic recovery while enforcing such draconian rules.

“Markets are particularly concerned that expectations for demand growth, coupled with China’s pledge to boost infrastructure investment, will not materialize, especially with China’s zero-covid policy still in play,” analyst Vivek Dhar said. of the Commonwealth Bank of Australia. this week.

Extreme restrictions have dampened overall domestic demand in China and there are fears of an ongoing chill in the economy as new cases of coronavirus are discovered every day.

Construction has also taken a hit in China due to torrential rains that have led to a stockpile of steel, further hurting factories’ profits and prompting them to shut down blast furnaces to limit losses.

“Doubts about the future growth of steel demand in China have meant that markets can no longer ignore the current market conditions of oversupply in China’s steel sector,” Dhar said.

As a result this week, the price of iron ore took a major hit and the Australian mining giants suffered as well.

as the The Australian stock market in general has taken quite a beating over the past two weeksmajor mining companies such as BHP, Rio Tinto and Fortescue were particularly hard hit.

Share prices of the three companies fell 16 percent, 7.94 percent and 17.07 percent respectively in the past month — with the worst losses in the past two weeks.

It was also a rocky week for the price of iron ore. On Tuesday, the commodity’s value fell a massive 8 percent in one day to $112.35 a ton — but it cut losses on Friday as it rose 6.1 percent to $116.05 a ton.

At the end of the week, there was an uptick after Chinese President Xi Jinping pledged to take tougher measures to meet the country’s economic and social development goals.

Speaking via video link at the opening ceremony of the BRICS Business Forum on Wednesday, President Xi called for greater economic policy coordination to avoid disrupting China’s recovery.

He said China would take steps to combat a difficult global economy and take more effective measures to achieve its annual economic goals while minimizing the impact of the Covid-19 epidemic as much as possible.

He gave no specific details on how this would be achieved, but it seems to have been enough to restore some more confidence in the market.

But despite this, Australia’s three iron ore mining giants were in the red on Friday, perhaps indicating we’re not out of the woods yet.

Drama at mega mine threatening Australia’s dominance

It has also been an eventful week for the iron ore world as a major development at a West African mega-mine threatens Australia’s dominance.

Dubbed the Simandou mine, the huge site in Guinea is one of the largest highest quality iron ore deposits in the world — with estimated reserves of 2.4 billion tons of the stuff beneath the red soil of its exterior.

This week, however, Guinea’s military ruler Mamady Doumbouya gave foreign miners just two weeks to set up a joint venture acceptable to the government.

Guinea is attempting to exploit one of the world’s largest iron ore deposits at an open-cast mine at Simandou in southeastern Guinea. It is also attempting to build approximately 670 kilometers of rail link between the site and a port on the Atlantic coast.

But the government has claimed that the mining giants that are its partners in the operation have not lived up to expectations.

“We note a discrepancy between your view of the implementation of the terms of the framework agreement and our expectations,” Doumbouya told the leaders of the mining giants when they met in Conakry on Friday, according to a state media broadcast.

Three months ago, a 35-year agreement was signed between the Guinean state, the Anglo-Australian company Rio Tinto Simfer and the Winning Consortium Simandou, co-founded by Chinese and Singaporean interests.

“This situation is not only deplorable, but also unacceptable for the Guinean state,” Doumbouya warned.

“To move forward effectively, I expect the joint venture to be established within fourteen days.” The completion date for the mine and the railway has already been set for December 2024, while the first commercial production is to start no later than March 31, 2025.

Iron ore exploitation has been hampered for years by disputes over mining rights, suspected corruption and the level of investment needed in a landlocked part of a country with a severe lack of infrastructure.

— with AFP

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