RBA: Chinese demand for Australian iron ore and coal is likely to slow

Photo: iStock

The Reserve Bank of Australia (RBA) thinks Chinese steel production — the largest producer globally — is probably at or nearing its peak.

And as the largest seaborne exporter of iron ore and coking coal, two of the main ingredients used to make steel, this will likely have ramifications for Australian iron ore and coking coal exports in the future.

“Over the longer term, growth in Chinese demand for the inputs to steel production is likely to slow, which will affect the outlook for Australia‚Äôs iron ore and coking coal exports,” the bank said in its quarterly statement on monetary policy released today.

This chart from the RBA shows its current forecasts for total residential construction, including steel use, in China over the decades ahead.

Source: RBA

The RBA says there are several factors underpinning its view, including a slowdown in China’s urbanisation rate, a likely reversal in population growth and the government’s move towards placing greater emphasis on environmental protection.

While falling steel production could see demand for Australian iron ore and coking coal weaken in the decades ahead, the RBA is not expecting a collapse in Chinese demand.

“Domestic steel demand is not expected to fall sharply, however, because the slowing in demand for construction-related steel is likely to be gradual, and some other sources of demand will continue to support Chinese steel production,” it says.

It also says that stronger demand from other emerging economies — such as the ASEAN region — could offset any slowdown in China to “some extent”.

The RBA has more here.

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