3 Jun 2021
Iron Ore: We live in a material World
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
If you were not aware, it was not the Federal Labor Government that economically saved Australia during the 2008 Global Financial Crisis, it was China.
China needs steel to build and the key ingredient for steel production is iron ore which the Australian continent has in excess volume.
China’s demand for iron ore began to accelerate in 2000 and accelerated faster again during the 2008 Global Financial Crisis and continues to grow.
This trading partner (China) has just kept buying greater and greater volumes of iron ore which is economically fantastic news for Australia.
Again, it is not the Federal Liberal Government that is economically pulling Australia through the COVID-19 Pandemic, it is China’s insatiable consumption.
Click for chart.
China has publically announced that it is vigorously working on finding alternative supplies of iron ore to reduce its reliance on Australia.
It is more than likely that they will have success but to what extent is the question.
If China completely stopped buying iron ore from Australia we would go into an economic recession because currently there is no alternate export revenue item big enough to replace AU$136 billion in earnings and which employs an estimated 262,000 workers directly and supports 1,000,000 workers indirectly.
It is extremely unlikely that China can immediately stop buying iron ore but the future is an unknown and so as Benjamin Graham taught, remain invested according to your appetite for volatility and when fear and panic take hold, then react by buying more quality assets at discounted prices.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.