Monsters of Rock: If China is just talking economic growth into existence, iron ore miners will take it

China’s Premier Li Qiang powers iron ore prices with bullish growth outlook for 2023
BHP’s Mike Henry takes aim and fires (again) on Queensland coal royalty
Despite criticising federal labour policies, Henry says Canberra has it right on Critical Minerals Strategy

Some classic Chinese economic dialogue emerged from the World Economic Forum’s quite deliriously titled Annual Meeting of the New Champions in Tianjin.

Presenters included a collection of former Australian Test cricketers, showing delegates how they like their Weet-Bix.

Brett Lee is trying to extend his Bollywood fame outside the Indian sub-continent.

Sorry, we jest. Actually on the bill was Chinese Premier Li Qiang, who suggests the country is going to hit its 5% annual GDP growth target after a 4.5% lift in the March quarter.

He said growth in the three months to June will be even better than that.

That is sure to raise some eyebrows, given the bearish nature of statistics actually coming out of the Middle Kingdom.

China’s youth unemployment rate hit a record in May, while a string of other economic data points missed Reuters expectations last month.

But we saw what will be at the very least a sugar hit for iron ore prices, with Singapore Futures up 4.12% at 3.30pm AEST to US$113.55/t.

“From what we see this year, China’s economy shows a clear momentum of rebound and improvement,” Li said in an English translation of the WEF speech.

While China’s recovery from Covid has failed to impress markets in recent weeks, the World Bank and IMF have upped their growth forecasts in recent weeks.

The World Bank says China’s GDP growth is set to hit 5.6% in 2023 on the back of capital spending in infrastructure and manufacturing.

That is despite the parlous state of its real estate market, the traditional driver of steel and iron ore market growth.

“Implementation of key structural reforms remains crucial to solidify the recovery and achieve China’s longer-term goals of environmentally sustainable, resilient, and inclusive growth,” said Mara Warwick, World Bank Country Director for China, Mongolia, and Korea this month.

“The economic recovery provides opportunities for further reducing financial risks, strengthening the social safety net, and implementing market reforms to encourage private investment while putting the economy on a more efficient decarbonisation path.”

Fortescue Metals Group (ASX:FMG) closed up 2.86%, with Rio Tinto (ASX:RIO) lifting 1.69% and BHP (ASX:BHP) up 1.48% as the materials sector recorded a 1.16% lift.

Just wait til China complains traders are manipulating the iron ore price. That’ll be a doozy.

What could damage iron ore prices going forward is the fast rate of steel production despite poor mill margins in the first half of the year.

China plans to keep steel output below 2022 levels – something that will require a slowdown in output through the second half.

Mike Henry’s still spoiling for a Sunshine State Slugfest

A World Mining Congress is going on in Brisbane, which we can only assume is part of Queensland’s pre-game for hosting an event no serious city really wants ahead of the 2032 Olympics.

Still, mining’s bigwigs have bought in and rolled into the Sunshine State, the biggest of them all BHP’s CEO Mike Henry.

The $20 million man was in fine form, launching once again on Queensland’s swift and sudden coal royalty change last year.

The policy collected billions in extra revenue last year for the QLD Palascszuk Government, way more than the $1.2b over four years it initially forecast, thanks to outlandish coal prices following Russia’s invasion of Ukraine.

In response, BHP said it would not be deploying capital to invest in its met coal mines in the State. Henry is maintaining that stance.

He compared its approach unfavourably to Chile’s recent moves to change its copper tax regime.

“By way of contrast, and it saddens me to have to say this on this stage and in this place, but I think we owe it to our host state and to this audience to be honest – here in Queensland, the approach to raising royalties could not have been more different. No industry engagement, no effort to understand and no interest in understanding,” he told delegates.

“The near tripling of top end royalties makes Queensland the highest coal taxing regime in the world. I repeat, the highest coal taxing regime for mining in the world.

“In this case, both the outcome and the process have meant for BHP that we have opportunities to invest for better returns and lower risk elsewhere around the world, as well as here in Australian states like Western Australia and South Australia.

“And we will not be investing any further growth dollars in Queensland under the current conditions.”

Henry also let loose on Same Job, Same Pay and multi-employer bargaining policies being pursued by the Albanese Labor Government, but doused complaints from the industry that last week’s Critical Minerals Strategy was too light on incentives for Australian resources projects.

“I did see some criticism that the new Strategy didn’t contain even more by way of subsidies. For what it’s worth, I think this is absolutely the right approach,” he said.

“Trying to match the Inflation Reduction Act is a losing proposition. Australia is simply too small.

“What governments here – federal and state – should focus on are those things within their control to make investment fundamentally more attractive. Not simply due to the sugar hit of a subsidy.

“There is enough investment appetite for good projects under the right conditions.”

He said BHP wanted to work with the Federal Government on its critical minerals list. The list of 26 metals notably does not include the nickel and copper mined by BHP at its Nickel West and Olympic Dam operations in Australia.