Iron ore and coking coal are two of Australia’s biggest exports. Add in thermal coal, which is much smaller and we end up with around 32% of total Australian exports.
It’s a fact that led some to think Australia is just a big China hedge fund.
Now, Australia is an economy dominated by services – just like the US – so this perception is largely misplaced. Particulalry given that iron ore and coal only make up about 6.4% of Australia’s total GDP. However, the prices that the big miners receive for these commodities do materially impact royalties in Western Australia and Queensland, as well as the federal governments company tax receipts.
WA, which banked nearly $2 billion last year from Rio Tinto alone, is already starting to feel the heat, with premier Colin Barnett already bleating about wanting more GST to offset the loss in revenue.
So news overnight that Morgan Stanley has further downgraded an already bearish outlook for iron ore and coking coal won’t be welcome news for the Treasuries in Perth, Brisbane or Canberra.