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One bright spot for China’s economy is that travel and spending patterns during China’s most important holiday break indicate that domestic consumption has rebounded, despite the economic struggle with deflation and a property crisis. It has primed China’s sharemarkets for a strong opening this week.
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ANZ senior commodity strategist Daniel Hynes doubted even a potential stimulus package from the Chinese government – something that investors have been discussing for months – would cure the country’s economic woes.
“I think the stimulus will help stem the fall that we’ve seen in property investment and construction activity, but that won’t ignite another rally like we’ve seen in the past,” he said.
This is crucial for Australian miners, as property and construction account for half of the 1 billion tonnes of steel China produces annually. But Hynes said iron ore miners were helping their own cause by recognising that growth in steel demand is reaching its limits.
“They’re now talking about peak steel demand and that did instigate a bit of a review of their projects,” he said.
Hynes said he expected this to pay off over the medium term as miners balance supply and demand.
“We actually have the iron ore market, remaining relatively tight over the next two to three years. On the back of that lower growth in supply.”
According to Macquarie Equities, consensus estimates expected a $US6.5 billion ($10 billion) underlying profit from BHP for the half year, a full-year profit of $US11.6 billion from Rio for the year ending December 31, and $US3.3 billion from Fortescue’s half year.
While BHP is a diversified miner, iron ore dwarfs the contribution of the other businesses.
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Macquarie forecasts that iron ore earnings before interest, tax, depreciation and amortisation will reach $US9.8 billion, followed by copper with $US3.1 billion and coal at $US1.1 billion.
BHP confirmed last week that its nickel business would make no contribution to earnings, after writing down the value of the loss-making business to zero.
The Albanese government subsequently added nickel to its critical minerals list, which opens access to potentially billions of dollars in government funding, and the West Australian government has also offered royalty relief for the nickel industry.
“The nickel industry supported almost 10,000 jobs, and generated sales of more than $5 billion last financial year,” WA Premier Roger Cook said on Saturday while announcing the package.
“It is also an essential component of the state’s vision of becoming a global hub for the downstream processing of battery metals.”
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