Strong Iron Ore Prices Will Continue to Boost Economy?
Iron ore is Australia’s largest commodity export and is forecasted to earn Australia around A$700 billion over the next six years till 2025-26. Increased royalties and tax revenues are continuing to support the Australian economy. Global iron ore prices have hit new highs in 2021 above US$200 a tonne in recent weeks, surpassing the previous record and providing a strong boost to Australia’s economy as the world recovers from the impact of the COVID-19 pandemic.
Strong Growth in Iron Ore Prices in the Last 5 Years
The iron ore industry has recorded strong revenue growth over the past five years, due to higher prices and output volumes. Chinese steel production, the world price of iron ore, and the value of the Australian dollar all strongly influence the industry's performance. China remains heavily dependent on Australia for iron ore, having imported 60% of its total production for at least the past six years.
The strong iron ore prices have led to strong earnings growth as well as stock market returns by the companies and the market expects further gains ahead. Rio Tinto Group, the world’s biggest iron ore miner, reported its highest-ever interim profit and announced the payment of $9.1 billion in dividend.
Recent Fall in Iron Ore Prices
Iron ore has been in a bull market for more than two year but over the last few weeks, iron prices have seen a continuous fall. Demand from China for Australian iron ore is falling as imports fell for the fourth consecutive month by volume. Iron imports by volume fell to 88.51 million tonnes in July compared with 89.41 million the previous month. This was a drop of 21% compared to the previous year where imports of iron ore hit a record high of 112.6 million. Construction restrictions, a slowdown in manufacturing and a goal to reduce emissions could all be contributing to a drop in China’s demand for Australia’s iron ore.
The market is expecting that even as China shows some signs of decelerating in steel demand growth rate in the second half of the year and into 2022, the rest of the world and (developed market) steel demand dynamics are incredibly strong. the “above-trend demand growth rate” is likely to be sustained through 2022, in part because steel will be an important raw material in promoting construction and infrastructure activities.
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