Alarming sign for Aussies as iron ore piles up at Chinese ports

In the years since China began its meteoric rise to become a global economic superpower, Australian governments of both political stripes have benefited enormously from the additional revenue from the resources sector.

From helping to fund the Howard government’s introduction of the Family Tax Benefit to the electricity subsidies of the Albanese government, commodity-driven government revenue has become an increasingly instrumental input in Treasury’s bottom line.

The rise in production of rare earth and other critical minerals key to the renewable energy future will, in time, take on a greater and greater share of total mineral exports. But for now, Australia has a heavy reliance on iron ore and coking coal exports, and by extension the demand for steel in China.

According to data from the World Steel Association, China produced 1.02 billion metric tons of steel during calendar 2023, more than the rest of the world combined and more than 7.25 times more than India in second place.

Last year, the biggest consumer of Chinese steel was the property sector, accounting for 33 per cent of the total, followed by infrastructure construction at 25 per cent. Despite Beijing’s attempts to diversify the Chinese economy, the share of overall steel consumption flowing to these two vital industries has declined by just 2 per cent since 2020.

While Beijing has been talking up the shift toward a more consumer and techfocused economy for a long time, there are concerning signs for Australia that 2024 is the year when this course is pursued more seriously.

The inventories of iron ore sitting at China’s ports are rising strongly. Between the last week of December and the first week of March, the level of inventory is up by 18 per cent.

Inventory levels have only risen to this degree at this time of the year once in the last decade, in early 2014. That was the beginning of a 70 per cent plunge in iron ore prices to the lowest levels since 2007.

Analysts speculate this may finally be the year when Beijing deploys a households and small business-focused stimulus program.

Despite Australia potentially exporting more wine or shellfish, if any resultant boom is driven by shifting stimulus funds away from infrastructure and property construction, it could end up being a sizeable hit to the Australian economy.

Our wine industry exported $1.2bn worth of wine into China prior to the pandemic. However, that amounts to approximately 4.2 days’ worth of the nation’s iron ore exports to China alone.

While trade tensions between Beijing and Canberra have reduced significantly since the Albanese government came to power, the various punitive trade actions taken by Beijing against Australian produce have not been entirely lifted.

Amid the continued rise in tensions between the West and China over all manner of issues from Chinese access to high-end computer chips to the ongoing disputes in the South China Sea, much of Australia’s exports to China remains vulnerable to punitive trade actions should Beijing choose to once more pursue that path.

Australian governments have built decades worth of budgets benefiting handsomely from the meteoric rise of commodity export-driven revenue. But whether the lucky country tag will continue to hold remains to be seen. Tarric Brooker is a freelance journalist and commentator @AvidCommentator