After the sharp decline in iron ore price in recent years, Chinese firms may be about to take advantage of favourable conditions to scoop up offshore mining assets, including those in Australia.
According to a report today in the People’s Daily newspaper, the official mouthpiece of China’s Communist party, Chinese firms should use depressed iron ore prices, amplified by a huge rise in seaborne exports and slowing Chinese demand, to increase overseas investments in the global mining industry.
“Sluggish demand in the sector has left foreign firms struggling to cope with falling commodity prices after a brief boom last year and in 2011”, notes the report, adding “Chinese companies should look to expand their global presence as metal ore prices continue to drop”.
Having hit an all-time high back in February 2011, the spot price for 62% fines has been in a severe bear market, falling more than 70%. Last week, according to the Steel Index, the spot price for the benchmark 62% grades fell to $44.10, the lowest level seen since at least November 2008.
The decline in the iron ore price, seen in the chart above, marks an opportune time to look for overseas mergers and acquisitions for Chinese firms according to Wang Jiahua, vice-chairman of the China Mining Association.
“It will take three to five years for the global mining industry to pick up”, Wang told the People’s Daily, adding “during that period, some foreign firms in the sector will face major challenges”.
Some of Australia’s smaller iron ore producers operating are likely to be selling at a loss in the current price environment.
Based on this government-voiced opinion it appears that Australia’s foreign investment review board will not only be kept busy reviewing applications from Chinese investors to purchase Australian property, but the nation’s mining assets.