Mineral surge slows as China tries to push prices down

Australia broke another export record in April as high iron ore prices poured into rivers of gold for the mining sector, further thwarting China’s attempts to punish us for criticizing its human rights policy.

But the pace of our latest export surge is slowing, complicating our economic recovery as China pushes down iron ore prices.

Australian exports only rose 0.03% to $ 35.9 billion in April, ABS said on Tuesday, while our imports fell 7% to $ 25.8 billion.

This pushed the trade surplus to $ 10.1 billion.

Data suggests the mining boom that injected billions of dollars into our economy during the pandemic recovery is losing its luster, with iron prices rising from over $ 230 a tonne in April to $ 208 on Tuesday.

Total exports of metal ores – the category that covers iron – rose just 1% to $ 16.5 billion in April, barely breaking a record in March.

China steps up iron crackdown

The ABS data comes after China stepped up plans to lower iron ore prices last week over fears their steel mills were overpaying for Australian minerals.

Last Sunday, China’s National Development and Reform Commission held meetings with its steel industry executives, promising to punish anyone engaging in escalating fraud, speculation or “violations”. the prices.

This sparked a selloff in iron ore futures, causing prices to drop by around $ 9 a tonne after the meetings, with further declines expected.

While the crackdown has yet to spill over to trade data, it is expected to do so soon.

And it’s not the only thing China is doing to reduce its dependence on our iron ore, either.

At the moment, China does not have a good alternative to buying Australian minerals. But he is investing heavily in finding new sources of a broader pessimism about the future of Australia-China relations.

Officials last week ordered their steel plants to source iron from Central Asian countries like Kazakhstan and Russia, and renewed efforts to extract iron from China.

But independent economist Saul Eslake is skeptical their plans will materialize.

“China has no short-term alternative to iron from Western Australia,” he said. The new daily.

“Brazil [our nearest competitor] has ongoing issues with repairing tailings dams at its major mines and with COVID outbreaks. “

Slowing iron will cost Australia

China’s demand for Australian iron ore is already slowing, but trade data released by ABS on Tuesday is not seasonally adjusted.

Iron exports to China rose only 0.58% to $ 10.5 billion in April.

It was the second record in as many months after a 19.7% surge in March, but April’s result was entirely due to a 4% rise in prices, which offset a 1% drop in quantity of iron ore shipped.

This means that China bought less Australian iron at a higher price.

Much of Australia’s export growth with China in April was actually the result of a 129% increase in gold sales, which resumed after a 14-month hiatus and brought in an additional $ 282 million to minors.

But iron ore remains the main game, making April’s result a worrying sign for our economy, even though prices are still relatively high.

For context, the Australian government cautiously assumed that iron ore prices would be $ 55 per tonne when it drafted the 2021-2022 budget.

But even small changes in China’s demand for Australian iron as part of its supply diversification efforts could have a big impact on prices.

Previous estimates suggest the budget brings in around $ 500 million for every $ 10 increase in the price of iron ore – but it goes the other way as well.

Mr Eslake said Australia’s economy could suffer if China’s efforts to lower the price of iron ore start to bear fruit, and he expects them to do so.

“They may well succeed in driving the price down from its current levels through the kind of regulatory missions they threatened,” he said.

Exporters find new markets

Elsewhere, there was good news for other exporters.

Exports of coal, barley, timber, seafood and wine to China are still subject to crushing import tariffs that were created last year to punish Australia for criticizing its policies domestic policy and engage in protectionism.

But exporters are finding new trading partners in other countries, with coal exports increasing 8.4% in April and grains (a category that includes barley) increasing 5.95% to 1.24 billion. of dollars.

Japan offers a good example. Our exports to neighboring China rose $ 297 million in April, up 7%, largely on higher coal sales.

And exporters have also turned to India, where an additional $ 116 million worth of thermal coal was sold in April, boosting total exports by 2 percent.

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