China-US trade friction takes a toll on Australian iron ore

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Trade tensions between the US and China are already taking a toll on commodities, just like iron ore. That’s a concern for Australia, which produces more of the element used to make steel than anywhere else in the world.

Lately, the price of the country’s prized resource has dropped from nearly 80 US dollars a tonne earlier this year to around 65 US dollars a tonne.

Part of the reason is the threat of a trade war, which began earlier this year when US President Donald Trump said he would impose import tariffs on steel and aluminium.

“The iron ore price started to weaken with the first tariff announcement,” said David Lennox, resources analyst at Fat Prophet.

David Lennox, resource analyst at Fat Prophets./CGTN Photo

He believed that created uncertainties in financial markets, which made investors nervous.

“Investors tend to take risk off the table and they don’t go into the commodities sector. We’ve seen that happen and we have seen weaker prices,” said Lennox.

“Iron ore is very important to us, it is our number one export to China and it accounts for about 20 percent of our entire export out of Australia,” said Jun Bei Liu, the deputy portfolio manager at Tribeca Investment Partners in Sydney.

It helped to insulate Australia’s economy during the global financial crisis, and enjoyed a resurgence in recent years as demand from China increased.

“It gave us a lot of discretionary spending and it was great for our economy,” said Liu.

Iron ore mining in Australia./Reuters Photo

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.

“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,” said Liu.

Australia’s economy has become less reliant on iron ore but it still enjoys the benefits from a healthy industry, especially the revenue generated by new mining projects.

Experts say a potential trade war remains the industry’s biggest threat and could lower prices even further.