China is making Australia richer, analysts and economists say, amid record-breaking iron ore prices, driving up mining and government earnings. Canberra is likely to have raked in an additional A$37 billion ($28.75 billion) over the past year as iron ore prices skyrocketed, surpassing $230 a tonne last week and breaking a 10-year record.
Iron ore used to sell for about $80 a tonne before the Chinese government announced a $500 billion post-pandemic stimulus plan in May 2020. This makes the demand and the price of ore simultaneously increase sharply.
Currently, for every $10/ton increase in the price of iron ore, the Australian government’s income, including corporate taxes and royalties on natural resources, increases by about A$2.5 billion, and revenue from Annual exports also increased by 11 billion USD, experts said.
"Political tensions aside, this is one of the most incredible transfers of wealth between the pockets of the Chinese and Australian governments. The Australian Treasury could add $34-37 billion to the budget," he said. treasury if iron ore prices stay above $200/ton," said Atilla Widnell, an iron ore analyst at Navigate Commodities.
The increase in revenue from iron ore by the Australian government and miners has surpassed that seen during the previous ore boom (which ended in 2013). In addition to the record high iron ore prices, production costs for miners are also lower, while China consumes in larger volumes, according to Widnell.
Miners only need iron ore prices to exceed $50/ton to break even if they export two-thirds of their output via sea, said Erik Hedborg, steel and iron ore analyst at CRU Group. shall. Some businesses can even export iron ore at a cheaper price, at $30/ton, and still earn a high profit of $180/ton, according to Widnell’s calculations.
Despite bitter conflicts over the past year that have led China to block many Australian exports such as coal and wine, trade between the two countries has remained unaffected. Iron ore exports from Australia to China surged amid increased demand for raw materials for steel production as the government pushed for real estate and infrastructure projects. Australia is still the largest exporter of iron ore to China with a market share of about 60%.
Currently, iron ore prices in Asia have cooled down, falling for the third consecutive session as of May 21 after the Chinese government introduced a series of measures to curb the increase in demand and ore prices.
The price of ore for September delivery on the Dalian Commodity Exchange fell 3.4% to 1,096.5 yuan/ton ($170.28/ton) and fell 5.4% for the whole week. This is the biggest weekly drop since mid-March. The price of ore for June delivery on the Singapore Commodity Exchange also fell 4.8% to $191.3/ton at 2:30pm on the same day.
