Chinese iron ore exports earn Aussies a record $12.7bn in May as China investigates the spot market

Australia absolutely raked it in at China’s literal expense in May, posting a new record in iron ore receipts on the back of never before seen prices.

The value of Australia’s iron ore exports to China have soared to a record $12.7 billion in May according to data from the Australian Bureau of Statistics.

It was expected, with a nine per cent increase in prices to a new monthly average record of US$207/t, and an increase in export volumes of 9% drove a $2.1b month on month rise, a roughly 20% increase.

Meat was another strong sector that, despite the ongoing diplomatic tensions between the countries which have hit Australian coal, seafood and wine exports, saw a 28% jump with another $57m flowing from our biggest trading partner.

Metalliferous ores, a category largely comprising iron ore, was responsible for $7.4bn of the $10bn (34%) increase in May exports year on year, an incredible 63% rise on exports from 12 months earlier at the height of the pandemic.

Exports of metalliferous ores to all countries raked in a cool $19.04bn, with iron ore sales outside China also increasing by around half a billion bucks, the third record high in a row.

It all drove Australia to a preliminary record monthly trade surplus of $13.3bn, on an 11% overall rise in exports to an also record high of $39.2bn.

The price did climb above $US230/t by the middle of the month before dropping below $US190/t just days after China announced plans to crack down on speculation it claimed was putting a rocket under prices.

Clearly China’s attempts to smash down iron ore prices have not gone as planned, with the country’s economic regulator, the National Development and Reform Commission, announcing a new iron ore spot market probe on Monday.

It had little immediate impact, with prices dropping briefly before climbing around 6% overnight to return to levels above US$210/t on Tuesday.

Analysts divided over iron ore prices

UBS caused a stir with bearish long term price view seeing it downgrade Rio Tinto (ASX: RIO) to a sell this week.

Around the grounds, other analysts have taken a more positive view on the market, through 2021 at the very least.

RBC Capital Markets has maintained its US$150/t 62% fines price estimate for the current quarter, though with just a week left in the month it seems unlikely.

Analyst Kaan Peker noted Chinese steel profit margins dropped below breakeven for the first time since March 1 last week, however exports from the five biggest miners Rio, BHP, Vale, FMG and Roy Hill dropped below 20Mt for the second week in a row.

JP Morgan this week upgraded its 2021 forecast to US$180/t, falling to US$150/t in 2022.

However, with the majors largely focused on sustaining projects and Brazil’s Vale slow to recover from temporary mine closures, the investment bank predicts supply-demand dynamics will remain tight until the planned development of the Simandou mine in Guinea in 2026.