The extraordinary run experienced by Australia’s iron ore miners this year is quickly coming to an end, according to Deloitte, which says a sharp sell-off in recent months is a “sobering reminder” of how quickly things can change in the volatile commodities market.
Delivering a bumper profit season for BHP, Rio Tinto, Andrew Forrest’s Fortescue Metals and Gina Rinehart’s Hancock Prospecting, iron ore has been comfortably the best performing commodity of 2019 in a market reeling from trade conflict and uncertainty, said Deloitte mining lead partner Ian Sanders.
On the back of strong demand from China’s steel mills and a global supply shortage following a dam collapse at a major Brazilian mine, the benchmark price of iron ore hit about $US120 a tonne.
The boom also delivered a significant and timely boost to national GDP growth and the Morrison government’s federal budget, as iron ore is Australia’s biggest export.
But “all good things come to an end”, said Deloitte’s Mr Sanders, who pointed out that the seaborne iron ore price recently experienced its steepest monthly decline in more than eight years.
“The forces that pushed iron ore to $US122 a tonne in mid-July – China’s steel production and tightness in the iron ore supply chain – are simultaneously unravelling,” he said.
“With miners warning on 2020 price outlook, iron ore is exhibiting all the elements of a failed souffle, promising the world but ultimately falling flat on closer inspection.”
Falling about 30 per cent from its previous peak, the iron ore price has dipped back below $US90 as supply begins to stabilise and the ongoing US-China trade war weighs on the economy of China, which makes about half of the world’s steel output.
Rio Tinto chief executive Jean-Sebastien Jacques last week said he remained the “optimist in the room” on the chance of an imminent resolution to the tariff war between the two superpowers that has been rattling world markets and casting a cloud over the outlook for global economic growth.
“Everybody understands it is in the interests of everyone to find a solution to the current challenges,” Mr Jacques said.
“Lots of discussions are taking place, as far as I understand. I have no doubt it will be resolved – and the sooner the better.”
Industry analysts will be closely watching the pace of global iron ore supply growth as Vale restarts production in Brazil as well as demand trends out of Chinese factories amid concerns of a slowdown in the country’s property sector and economic headwinds from the trade war.
Vivek Dhar, a mining and energy commodities analyst with the Commonwealth Bank of Australia, said the disruptions that have dogged the iron ore market had subsudied, leading to prices falling amid an improved supply. Although there was the prospect of a US-China trade deal, it has not yet “moved physical demand”, he said.