Iron Ore and Gold keeping Australia up

A very interesting article, albeit 2 weeks old. This is relevant to the on-going trade disagreement between China and Australia, which for those following know that it has all the potential to get substantially more hostile. Some interesting information about Australia’s economy and how large of a contribution is attributed to Iron Ore is provided.

While Australia is the world’s largest exporter of LNG and coking coal, and ranks second in thermal coal, it is also the biggest shipper of iron ore, and the world’s second-largest gold producer.

It is iron ore that is doing the bulk of the heavy lifting in keeping Australia’s resource exports buoyant, with the report forecasting export volumes of 852 million tonnes in 2019-20, rising to 893 million in 2020-21 and 912 million the following year.

I don’t believe it is too much of a stretch to think that we may get to a world where China does in fact decide they no longer wish to have 60% of their Iron Ore imports come from ONE country, the same country that is asking for an independent probe in China for the origins of COVID-19. Such a scenario will apparently have consequences to Australia’s economy. What the article doesn’t mention is that it will also have a big impact on Iron Ore prices, and would certainly amplify the bull case.

While tensions have risen between Australia and China in recent months over Canberra’s support for an international probe of the origins of the novel coronavirus and Beijing’s early response, it’s likely that the iron ore trade would be the last affected by any ill will.

The author believes Iron Ore will be the last affected, however with China actively exploring Africa for Iron Ore sources (link), and substantially higher grade available in assets such as the Shymanivske asset by BKI (link), I personally believe it would be prudent to consider the possibility that China has a few more options than what prevailing sentiment implies. Any increase in verbal/political disagreements can easily spill over to Iron Ore trade, and China may be far more aggressive with seeking alternatives.

It’s the prevailing view that Australia is overly exposed to China for its exports, but it’s less common to take the view that China’s economy is heavily dependant on steel, and its steel industry is largely beholden to Australia’s iron ore miners.

This is the primary reason it has not spilled over yet, as China needs this resource. It is also another reason why it would be VERY reasonable to believe China absolutely will continue seeking other sources, as doing so will give them greater leverage.

The author concludes with this paragraph:

While iron ore and gold are holding up Australia for now, it’s quite possible that LNG, coking coal or alumina may be the big movers in the next upswing.

I recommend you read the whole piece by the Globe and Mail. Here is the link: https://www.theglobeandmail.com/investing/investment-ideas/article-iron-ore-gold-are-keeping-australias-luck-from-running-out/