Australian iron ore and coal prices fell 25% in the fourth quarter of last year

The weakness of the global economy is “foreshadowing” the weak growth of mining profits this year, as Australia’s export commodity prices are starting to decline from the highest point.

3 months after the company's performance was weak

In the third quarter of last year, the Australian mining sector recorded a profit of 26 billion yuan, a record high. Due to the increase in prices of resource products, the profit of the sector increased by more than 17% year-on-year. The industry’s ability to record such good results was driven by the global resource boom. A key indicator of Australian export commodity prices last year rose to its highest level in 140 years.

However, as investors are not optimistic about global economic growth prospects, the price of coal and iron ore dropped sharply by nearly 25% in Australia’s two largest export commodities in the fourth quarter of last year. Analysts said that the recent decline in commodity prices will lead to the Australian mining industry’s profits this year. Seriously damaged, the performance of Australian companies was greatly affected.

The decline in the prices of these commodities has not yet been reflected in the company's earnings, because there is a three-month lag between the changes in the spot market and the contract price changes. Mark Pervan, chief commodities strategist at ANZ Bank, said that as the pre-Christmas commodity price drop will be reflected in the company's earnings in the first two quarters of this year, the performance of the company will be relatively weak during this period. Pervan said: "Because the price of most contracts will be quite low, you will see disappointing results in the first half of this year from a profit perspective."

The peak commodity price or has passed

Looking at the economy as a whole, it is expected that the decline in commodity prices will lead to a drop in the income from Australia's very high export value. It is estimated that the terms of trade (the ratio of export prices to import prices) in September last year have hit a new high of 140 years.

However, Ben Jarman, a senior economist at JP Morgan Chase, said that the bank expects this year's terms of trade to decline by 8% to 10%. Jarman said: "The current decline in commodity prices and the difficulties we will face in the coming quarters means that the peak of commodity prices has passed."

Most analysts agree that the commodity prices have peaked at the end of last year, and the data released by the Reserve Bank of Australia last week also showed that the price of natural resources in Australia fell by 1% in December last year. Jarman said that even if export prices fall by 10%, it is still 75% higher than the long-term average.

However, he said that the decline in commodity prices could not stop the investment boom in mining projects, and mining investment is expected to continue to grow this year. Despite the worrying economic situation in Europe, Jarman said that commodity prices may still rise this year, as the period of investor confidence has been hit again and again has passed.

He said that investment officials believe that the Chinese government will relax credit conditions, which will increase market confidence.