Trade Tensions: Australian iron ore price falls by one fifth

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Talk of a potential trade war is already impacting one commodity - iron ore, which is used to make steel. The price of iron ore has dropped by one fifth since last month, and experts say it could be heading lower. That's a concern for Australia, which exports more iron ore than any other country. Greg Navarro has more.

Australia is a resource-rich country and the one resource found here that has proved to be among the most valuable is iron ore.

DAVID LENNOX, RESOURCES ANALYST FAT PROPHETS "It is our biggest exporter significantly in terms of dollar amounts."

In 2016, iron ore exports accounted for nearly $40 billion dollars, most of it went to China. The element used to make steel helped insulate Australia's economy during the global financial crisis, and has enjoyed a resurgence in recent years as demand from China increased.

JUN BEI LIU, DEPUTY PORTFOLIO MANAGER TRIBECA INVESTMENT PARTNERS " It gave us a lot of discretionary spending and it was great for our economy."

But lately, the price of the country's prized resource has dropped, from nearly $80 US a tonne earlier this year to around $65 US a tonne. One reason is the threat of a trade war, which began earlier this year when US President Donald Trump said he would impose tariffs on steel and aluminum imports.

GREG NAVARRO SYDNEY "Experts say that has brought the notion of uncertainty to financial markets, and where commodities including iron ore are concerned, investors don't like uncertainty."

DAVID LENNOX, RESOURCES ANALYST FAT PROPHETS "We see investors tending to take risk off the table and they don't go into the commodities sector and we've seen that happening and we have seen weaker prices."

Mining companies with lower grade iron ore, such as Fortesque have also been impacted by slowing demand in China as it cracks down on steel production to help reduce pollution.

JUN BEI LIU, DEPUTY PORTFOLIO MANAGER TRIBECA INVESTMENT PARTNERS "The lower grade iron ore has been impacted substantially, I think late last year we were hearing stories that a lot of these were just sitting in the port and couldn't be sold."

While Australia's economy has become less reliant on iron ore since the end of its mining boom, it still enjoys the benefits from a healthy industry.

DAVID LENNOX, RESOURCES ANALYST FAT PROPHETS "Mining companies tend to always be developing something, you know building a new project here, finding a new development there, which means they are always paying new royalties into state coffers as well."

But experts say the possibility of a trade war remains the industry's biggest threat and could lower prices even further. Greg Navarro, CGTN, Sydney