THE NEXT BOOM PHASE: Iron Ore Export Avalanche To China A New Record

The third phase of the mining boom, one of frenzied production, has kicked in with a vengeance and there’s more to come.

Iron ore exports to China hit a new record high last month and will end the year at a record high, according to figures from Western Australia.

Volumes from Port Hedland, the world’s largest iron ore port, rose by 33 per cent in October to 28.9 million tonnes compared to a year ago.

HSBC Chief Economist Paul Bloxham expects Australian iron ore export volumes to close this year up by about 16 per cent with prices about 7 per cent higher compared to 2012.

“A strong pick-up in Chinese spending on infrastructure in recent months saw iron ore prices rally in the third quarter, which is typically a seasonally weak quarter,” he says.

Bloxham says the volume and price rises suggest iron ore exports are likely to have boosted Australian incomes (nominal GDP) by around 0.9 per cent in 2013, which follows a drag in 2012 as prices fell sharply.

Net year, however, prices could fall in 2014 to USD115 a tonne from USD134.

However, this would still leave iron ore prices relatively high at 780 per cent above their 1990s level.

FORECASTS:

* HSBC’s China economics team forecasts China’s growth in fixed asset investment slowing from 20.5 per cent in 2013 to 19 per cent in 2014.

* Iron ore supply to continue to ramp up. Australian official forecasts, based on capacity that is being built, suggest an expected pick-up in export volumes of 17 per cent in 2014.

* Ion ore prices could fall from USD134 this year to USD115 in 2014

* A fall of this magnitude could knock -0.6 percentage points off Australian income growth in 2014

* This fall would be offset by the expected pick up in export volumes
Iron ore accounts for 21 per cent of Australian exports and 4 per cent of GDP.

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