A new report issued by East and Partners show that Australia's exports from iron ore continue to soar despite concerns that the mining boom may be coming to an end.
For the third quarter of 2013, shipments of iron ore were 20.9% higher than the corresponding period last year. The mining investment boom is generally considered to have peaked in Australia, however the latest data from the East and Partners report show that export earnings from iron ore continue to rise.
Australian ports continue to surpass iron ore shipment records, indicating sustained demand from Chinese steelmakers for Australian iron ore.
Iron ore is also racing ahead of coal and is tipped to have generated more than double the latter's revenue in the last quarter of 2013. The report forecasts that Australia stands to earn US$21.9 billion ($24.5 billion) from iron ore exports during the last three months of 2013, compared with softening thermal and coking coal revenue of US$10.1 billion.
East and Partners analyst Martin Smith views the latest forecasts as promising for iron ore and coal industries shifting from greater capital expenditure in capacity and efficiency improvements to outright production, as evidenced by Rio Tinto slashing capital expenditure over the next two years.
The majority of industry analysts expected growing iron ore stockpiles and declining Chinese growth to weigh on iron ore prices, however this has not happened. The price of iron ore has remained consistently over US$130 a tonne. During the last quarter of 2013, the iron ore price was 1.3 per cent higher at $US136 a tonne.
The latest data is good news for Australia's three largest iron ore producers, Rio Tinto (ASX: RIO), BHP Billiton (ASX: BHP) and Fortescue Metals Group (ASX: FMG). During FY13, Rio and BHP generated approximately 70% and 60% of revenue from iron ore production respectively. With Rio, BHP and Fortescue producing in the US$35-65 tonne range, the current price will ensure that iron ore will continue to be extremely profitable.
Foolish takeaway
The latest data indicates that there are no signs of slowing demand from China for Australia's iron ore. The continued demand and high price of ore will benefit Rio, BHP and Fortescue as Australia's largest volume, low-cost producers. The huge cash flow generated by iron ore going forward should benefit shareholders in the form of increased dividends and buy-backs.
