The free market can be a brutal and unforgiving place even when you’re as powerful as the Chinese Communist Party.
This week has made it painfully clear that their plan to drive down the price of Australia’s number one export has backfired — and now they’ve been hit with another devastating supply issue that is likely to drive prices up even further.
Iron ore — a critical ingredient in steelmaking — is now fetching an eye-watering US$217 a tonne after a week of sustained gains. That is more than double the price of what it was a year ago.
This comes despite more tough talk and threats via Chinese state media this week to send Australia into a “wintry period” by wiping more than $81 billion from our economy.
The CCP now reckons that by using the latest technology in scrap steel recycling, it can cut our iron ore exports to them in half in the next ten years.
That would be potentially devastating for the Australian economy, as China is still currently buying huge amounts of Australian iron ore.
In the first five months of the year China snapped up 444.9 million tonnes. Over 2020, China bought 81 per cent of all the iron ore Australia shipped overseas.
The export brings in about $136 billion to Australia’s economy a year, and is by far Australia’s largest and most valuable export.
Just over two weeks ago, the price of iron ore dipped below $US200 a tonne after hitting a record high in mid-May, driven by concerns China would intervene to stop speculative behaviour.
Some experts feared a downward slide was on the cards, but this week it has taken a spectacular rebound to another level.
As mining companies prepare to give out big dividends to shareholders and prices continue to climb, China has been hit by yet another problem.
Global supplies of iron ore were already tight, which is a key factor in its rising value amid record demand from China.
China’s iron ore port inventory hit a four-month low last week, while weekly shipment arrivals fell.
But the situation is tipped to get even worse for Beijing in the coming weeks, as the world’s second biggest iron ore exporter, Brazil, is facing more problems.
Brazil’s Vale SA has now halted production at two mines and decommissioned a dam over safety concerns. The closures will reduce its output by 40,000 iron ore tonnes a day, it said.
The Latin American nation’s output was already suffering because of a dam collapse and the pandemic, but this added spanner in the works means it may take much longer for the mining industry there to get back on its feet.