Summary: Affected by China's steel production cuts, Australian stocks fell to a near four-month low on September 29, with mining stocks down 2.3% overall. Shares of the three mining giants—BHP, Rio Tinto and Fortescue Metals Group—all closed down between 2.2% and 2.5%. According to Reuters, weak commodity prices have severely hit Australian mining stocks due to production restrictions caused by power shortages in China, Australia's largest trading partner.
Affected by China's steel output reduction, Australian stocks fell to a near four-month low on September 29, with mining stocks down 2.3% overall. Shares of the mining giants BHP, Rio Tinto and Fortescue Metals Group closed between 2.2% and 2.5% lower. Reuters said weak commodity prices have hit Australian mining stocks hard as power shortages in China, Australia's largest trading partner, led to production restrictions.
Australian media have recently begun to shift away from their optimistic outlook on economic growth, especially regarding how the country's exports—worth as much as A$125 billion (about RMB 600 billion) in 2020—will be affected by China's economic development and Australia-China relations. Australia's 9 News reported that iron ore hit a record high of A$233 on May 12. Since July, international iron ore prices have fallen continuously as China reduced imports from Australia. Data from the Commonwealth Bank of Australia show that China's steel output fell 8.4% in July and 13.2% in August. Australia supplies 60% of China's iron ore imports, and 70% of Australia's iron ore exports go to China.
According to the Australian Broadcasting Corporation (ABC) on September 29, prices are expected to continue falling in the coming weeks as China's demand for Australian iron ore slows and Brazil's output recovers. On the 29th, the Ridges iron ore mine in Kimberley was closed due to the plunge in iron ore prices, leaving hundreds of miners jobless. It is one of several mining companies in Australia recently forced to close as a result of the commodity price crash.
In an exclusive interview with CBS this week, Australian Prime Minister Scott Morrison claimed that "the deterioration of Australia-China economic and trade relations will help Australian companies diversify their export markets." Earlier this month, Australian Treasurer Josh Frydenberg also optimistically told the media that although Australia's exports to China fell by A$5.4 billion in the second quarter, exports to other markets increased by A$4.4 billion over the same period, partially offsetting the loss in exports to China. However, he did not mention the important context that Australia's second-quarter trade performance benefited from iron ore prices remaining at record highs during that period. Analysts believe that with Sydney, Melbourne, Canberra and other major cities having been in long-term and repeated pandemic lockdowns since June, Australia's economy will inevitably contract in the third quarter. The plunge in iron ore and other commodity prices will undoubtedly make things worse for the Australian economy.