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News Analysis: Sudden collapse of iron ore price casts shadow on Australian economic prospect

English.news.cn   2014-03-15 11:29:59

by Jeremy Zhao

CANBERRA, March 15 (Xinhua) -- The Australian Bureau of Statistics (ABS) on Thursday posted the biggest monthly full-time payroll surge since 1991. Although the jobless rate held still at 6 percent, the number of full-time jobs increased by 80,500 across the country in February. This is surprisingly good data, showing that the economy is recovering and the central bank's low interest policy has worked.

However, the sudden plunge of iron ore and copper prices cast a shadow on the Australian economic outlook. There are concerns that the slowdown in Australia's biggest trading partner, China, will eventually hurt Aussie economy, especially the mining sector.

On Thursday, China released economic data of fixed-asset investment and industrial output of first two months of 2014. Both figures missed targets with fixed-asset investment growth at 17.9 percent and industrial output growth at five-year low, 8.6 percent.

The commodities market has already anticipated the weak economic data from China. Both iron ore and copper suffered sudden price crash in the past week. In north China, the price of iron ore has already fallen from 135 U.S. dollars a ton at the beginning of the year to 105 U.S. dollars now, almost 20 percent off.

Many explanations have been brought out for the iron ore price drop -- unexpected Chinese trade deficit in February, record stockpiles of iron ore in Chinese major ports, government's decision of tightening credit for underperforming steel mills.

Also China is determined to fight against air pollution, particularly around capital city of Beijing, by means of cutting steel production capacity in Hebei province which accounts for a quarter of total steel production in China.

Price fall and shrinking demands from China will surely put more pressure on the mining companies.

"Rio Tinto, BHP and Fortescue, the three big producers here in Australia, have invested an enormous amount of time and money in expanding their production capacity over the last few years and they're just starting to deliver the biggest lift in those programs last year and this year, so they'd be a little bit troubled by this," said Tom Price, UBS commodity analyst.

But the iron ore bosses are not as worried as the analysts. On the contrary, they are undeterred with the long-term prospect of the commodity.

"There will be short-term volatility, proof of which you are seeing this week. The longer term is still intact and I can't see any indication that would change my mind, we still see good growth in the market through to the 2020s," Rio Tinto's head of iron ore, Andrew Harding, said at the AJM annual global iron ore and steel forecast conference in Perth.

This view is shared by BHP Billiton head of iron ore, Jimmy Wilson, who said at the same conference that "our view that Chinese crude steel production is expected to peak at 1.1 billion tons, around 2025, is unchanged".

Editor: An
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