China biggest worry as prices for Australia's biggest export halve

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China is now one of the biggest worries for Australia’s most powerful bankers with iron ore prices halving in just two months.

As recently as July, the commodity used to make steel was worth $US200 a metric tonne but in recent days, it has dropped to $US100 for the first time since July 2020.

To meet climate change targets, China’s Communist Party government has ordered cutbacks in steel production, reducing the need for iron ore from Western Australia‘s Pilbara region.

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The Reserve Bank of Australia has now revealed the plunge in iron ore prices was discussed at its September meeting, chaired by Governor Philip Lowe.

‘There was also uncertainty about the effects of a range of recent policy measures, including those aimed at curbing financial stability risks, reducing carbon emissions and achieving broader social objectives,’ the bank’s monthly meeting minutes said on Tuesday.

‘The price of iron ore had fallen from high levels in recent times as Chinese authorities intensified efforts to restrict steel production.’

Chinese President Xi Jinping’s directive to slash steel production affects Australian shareholders, especially those who own shares in mining companies, which have taken a hammering.

China’s bid to meet its net zero by 2060 climate change targets has also placed pressure on its second biggest property developer, Evergrande, which on Monday failed to meeting an annual interest payment obligation.

Before the cut in steel production, unfinished apartment towers were already being demolished, highlighting the problem of ‘ghost cities’.

Since July 29, iron ore miner Fortescue Metals Group has seen its share price plunge from $26.30 to $14.72.

BHP’s share price since August 4 has plummeted from $54 to $37.73 as Rio Tinto during the same period has tumbled from $134.40 to $95.47. 

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Iron ore was, until recently, immune to China’s trade sanctions against Australian exports ranging from wine to lobster, beef, lamb, timber and cotton.

But Brazil is now better able to mine iron ore, belatedly recovering from the  2019 Vale tailings dam collapse.

IG market analyst Kyle Rodda said ‘a very targeted attempt’ from the Chinese Communist Party to reduce steel production had hurt iron ore prices.

‘There’s a concern about a slowdown in Chinese property development and construction activity where you can see lower demand for commodities, especially iron ore,’ he told Daily Mail Australia. 

‘It’s an environmental drive, part of this really big push from Chinese policymakers to reshape, restructure their economy right now.’

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