Courtesy of the Australian Financial Review.
Australia’s China-led iron ore boom is raining wealth on the shareholders of the nation’s big three iron ore miners. Fortescue Metals Group’s record-smashing $US10.3 billion full-year profit was more than double the previous record: last year’s $US4.73 billion.
This follows the record dividends of BHP and Australia’s largest iron ore producer Rio Tinto. It adds up to a record $65 billion in profits from the big three in a year marked by a global pandemic and trade penalties from China, Australia’s biggest customer.
The bonanza has been driven by record high prices caused in part by COVID-19 supply disruptions in Australia’s biggest iron ore competitor, Brazil. As during the global financial crisis, it will hold up the economy amid the possibility that Wednesday’s national accounts will reveal the economy slightly contracted in the June quarter following its V-shaped rebound out of the 2020 lockdowns.
That would signal a double-dip recession, given that the economy has surely been shrinking in the current September quarter because of the NSW and Victorian lockdowns. Amid a once-in-a-century pandemic, the nation’s major export commodity is playing an outsized role in helping to hold the economy together.
The resilience of Australia’s iron ore and wider resources sector underlines the importance of the transformation of Australia’s economic and strategic orientation, which began 70 years ago this week with the signing of the ANZUS security pact with the United States, followed by a formal peace treaty with Japan.
The deep complementarity between Australia’s resource-based economy and the Asian economies hungry for raw materials has continued as record amounts of high-priced iron ore have been shipped to China even as Beijing’s trade war has targeted Australia’s beef, barley, wine, seafood and coal exports.
That’s because there is no ready substitute for Australia’s iron ore. The record iron price that at one point pushed above US$200 has now come off. Beijing is keen to develop alternative supplies in west Africa, but those will take time to come online.