Australia Lowers Iron Ore Revenue Projections As Chinese Demand Fizzles

There seems to be a dark cloud hovering over the Australian iron ore mining industry right now. Revenues for the major mining companies have been dropping and forecasts for the short-term future appear to be somewhat bleak.

In fact, Canberra Australia, the world’s largest exporter of iron ore announced recently that it was reducing its revenue forecasts for iron ore sales by a whopping 20%.

The reason for this is simple. The company’s largest – and best – customer, China, is experiencing a slowdown in construction projects and, as a result, has cut back on orders for the major steel-making component.

This is potentially troubling news. Australia had been one of the few countries with the ability to avoid a national recession during the global financial meltdown four years ago … because Chinese demand for iron ore was so strong.

Now, reduced Chinese demand and rapidly-falling prices have raised real concerns for Australia’s economy.

It is not a concern that should be taken lightly. The Bureau of Resources and Economic Energy (BREE) has issued a forecast for iron ore exports and revenue in September at $55.9 billion, a number that is down from the June forecast which stood at a more robust $67 billion.

That’s a significant drop, especially when you consider that iron ore is Australia’s largest export product and is essential to a healthy and vibrant economy.

Martin Ferguson, the government’s Resources Minister, admitted publicly that “the news is not good.” However, he also said that it is by no means a death knell.

It’s also a fact that the Australian government had been counting on $270 billion in new, committed energy projects to sustain and continue the country’s longstanding 21-year period without a recession.

Few countries anywhere on the globe have been able to enjoy such a lengthy period of economic “good times.” And yet:

The news is not all bad. Rio Tinto, another major miner of iron ore, believes that Chinese demand will increase sooner rather than later.

In fact, David Peever, Rio Tinto’s Managing Director said recently that he expects increased demand from Chinese buyers before the current year ends.

If that happens, and that increased demand stretches into next year which is something that Mr. Peever also expects, it’s fair to say that the Australian economy will remain strong well into 2013 and beyond.

And that means good times may lie ahead for Australia and its citizens.

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