China's demand for steel is serving Australia's iron ore industry well, keeping the spot price of the steel-making ingredient above US$130 per tonne.
The world's second biggest economy surprised investors as it imported 74 million tonnes of iron ore throughout September but produced negative export growth when compared to the previous corresponding period. Despite surging demand from the property and automotive sectors, exports contracted 0.3% on the year and gives the market new reason to believe the Chinese economy is slowing.
Many Australian companies rely heavily on Chinese demand to keep their businesses alive. Not only do iron ore companies like Rio Tinto (ASX: RIO), BHP (ASX: BHP) and Fortescue (ASX: FMG) derive large parts of their revenues from the developing nation, it is Australia's number 1 export partner, accounting for around 35% of total exports in the second quarter.
Australia's biggest exports include iron ore, wheat, meat and pharmaceuticals. The growing amount of trade between our country and China mean a slowdown in Asia will have repercussions here. These concerns come however as the world's number two economy continues to post strong growth figures. ANZ (ASX: ANZ) China economist, Liu Li-Gang, expects third-quarter growth between 7.6% and 7.7%, according to The Australian Financial Review.
In a note Mr Liu said, "We would like to highlight that downside risk to China's economy remains." Despite some accrediting the poor Chinese export figures to "export over-invoicing" Mr Liu said data from a "preliminary comparison showed that port throughput indeed slowed in major wharfs last month."
JPMorgan Chief China economist Zhu Haibin was more optimistic on Chinese growth saying, "Looking ahead, our global team expects a gradual improvement in the global economy, in the second half of 2013, which should provide support of China's exports."
Foolish takeaway
Business leaders at some of Australia's biggest mining companies are growing increasingly bullish on Chinese growth trends and ramping up production to take advantage of the growth. However, many investors have begun questioning the increases and the future price of many commodities, including iron ore.
Don't want such a big risk in your portfolio? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."
More reading
- 4 earnings growers in dull markets
- Gaming stocks hit the jackpot
- 3 strategies to diversify your portfolio
Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
