80% fall ! That's not just bad, that's disastrous.
So not only is (1) China getting more of its iron ore from Guinea (Rio Tinto JV) with Rio likely to steal BHP's thunder in the years ahead, but also (2) China could be diversifying slowly away from Australia, now (3) Chinese demand for iron ore for domestic purposes is expected to fall sharply as its population age. And (4) with China going more green, it could be allocating more of its iron ore purchases to Fe65% rather than low grade iron ore from BHP.
BHP Hodlers should consider how long is long that they wish to invest (for dividends) and we have to also worry about what this portends for our Aussie $ in the years ahead.
Without China, our iron ore can only hope to go to India,...good luck terms of trade.
AUD Gold would certainly protect us from a depreciating AUD over time. China’s iron ore demand may have peaked, RBA warns Michael ReadEconomics correspondent
Updated Apr 18, 2024 – 11.56am,first published at 11.30am
Chinese demand for Australian iron ore may have peaked, the Reserve Bank of Australia has warned, setting the scene for a potential multi-decade hit to government revenue and mining industry profits.
While the Chinese property sector consumed 296 million tonnes of steel in 2019, the RBA expects demand to fall by 80 per cent to 58 million tonnes by 2050 as the country’s population shrinks and fewer homes get demolished.
“The weak long-term outlook for steel demand from urban residential construction is consistent with the RBA’s previous assessment that growth in overall Chinese steel demand is likely to slow in the future and may be near its peak,” RBA economist Adam Baird wrote.
“Slowing overall steel demand in China could weigh on global demand for iron ore and, all else equal, its price.”
China accounted for a record 85 per cent of Australia’s $136.1 billion in iron ore exports in 2023, according to analysis of data from the Department of Foreign Affairs and Trade by The Australian Financial Review.
Iron ore is the main ingredient in steel-making, so a persistent decline in Chinese steel demand would present a significant headwind for the federal and West Australian governments, which reap billions in royalties and tax revenue from the likes of Rio Tinto, BHP and Fortescue.
Australia’s resource sector has experienced an increase of more than 60 per cent in profits since the onset of the pandemic, according to data from the Australian Bureau of Statistics, due to a combination of resilient iron ore prices and a surge in energy prices following Russia’s invasion of Ukraine.
BHP and Rio Tinto paid a quarter of all corporate income tax in Australia in 2021-22, contributing a combined $20 billion to the federal budget. Chinese population shrinks
While steel demand from China’s property sector has been falling since 2021, strong growth in manufacturing and infrastructure investment has picked up some of the slack, supporting iron ore prices.
“But in the longer term, headwinds to investment growth in these sectors from high levels of government debt, a declining population, and a slowing rate of industrialisation mean that demand for steel from these sectors may grow more slowly, or even decline,” Mr Baird said.
“As a result, the longer-term outlook for urban residential construction in China remains important to the outlook for Chinese steel demand and, in turn, Australian exports of iron ore to China.”
The United Nations projects China’s population, currently 1.4 billion, will fall to 1.3 billion by 2050 due to the country’s record low birth rate and ageing citizenry.
As China gets wealthier and the quality of its housing stock improves, the share of homes being demolished each year is forecast to fall to 0.5 per cent in 2050, from 1.5 per cent in 2015, also reducing demand for steel and iron ore.
China’s property market has been in a severe downturn since 2021, after authorities made it more difficult for highly indebted developers to access credit. Beijing’s more recent efforts to re-ignite home building have shown little evidence of success.
It is not the first time the RBA has predicted a peak in iron ore markets. The central bank made a similar prediction in 2017, when the commodity was trading between $US60 and $US70 per tonne. Prices subsequently took off, exceeding $US200 per tonne in 2021.
While iron ore prices slipped by 27 per cent in the three months to December 31, mining giant Rio Tinto on Wednesday struck a relatively optimistic tone about the short-term outlook for steel demand in Australia’s largest trading partner.
Rio said China’s domestic steel demand trended at levels similar to last year, but steel exports jumped 30 per cent year-on-year in January and February. It predicts China’s steel exports will remain at historically high levels and support demand for iron ore in the face of concerns about the softening property market.
US President Joe Biden on Wednesday (Thursday AEST) announced a tripling of tariffs on Chinese steel and aluminum imports, but analysts expect little flow-on to Chinese demand for Australian resources.
Chinese steel accounts for only 1 per cent of America’s domestic supply, and aluminium for about 3.6 per cent of total imports.
