Expert says coronavirus crisis will be GOOD for Australian miners as China tries to boost its economy with high-quality ore from Down Under
- Chinese demand to soar in year's second half after coronavirus shutdown
- Factories will have to surge production to meet China's yearly targets
- Inventories of iron ore and coking coal had been stockpiled but will get used
- Nobody knows when China's factories will reopen or get back to full capacity
Market experts have said demand for Australian iron ore and coking coal may boom in the second half of the year as China tries to kickstart production in the wake of the coronavirus crisis.
Chinese factory production is predicted to surge once the coronavirus shutdown passes so they can meet yearly growth targets, economists and market watchers believe.
This would boost demand for steel, and therefore Australian iron ore and coking coal, after a recent demand slump caused by high inventory levels and the killer disease.
Iron ore and coking coal are needed to smelt steel (stock image). Hopes are high that Chinese demand for Australian iron ore and coking coal will surge once the coronavirus shutdown is over as factories rush to meet yearly production targets
NSW Minerals Council chief executive Stephen Galilee said the outlook for coal producers was bright.
'Any interruptions to coal production volumes in China may create demand shortfalls, with potential opportunities for Australian coal exporter,' he told Daily Mail Australia on Monday.
AMP Capital chief economist Shane Oliver said while there had been a slowdown in China, long term the prospects for iron ore and coal were good as factories had to meet yearly production targets.
'Steel production is well down on normal levels and coking coal inventories have built up,' he told Daily Mail Australia.
'The numbers are down for now but there will be a rebound as the Chinese are committed to growth targets this year, so they have to make up for lost production in the second half which would benefit our producers.'
China's northern port of Dalian where some of Australia's coal exports land
Dr Oliver said nobody knows how long the economic disruption would last for.
China is Australia's biggest trade partners taking about a third of Australia's exports, with iron ore and coking coal - used to make steel - among the biggest exports.
Australia shipped 40.5 million tonnes of iron ore to China through West Australia's Port Hedland in January alone, port statistics show.
Factories have ground to a halt in China over the past six weeks as the Middle Kingdom imposed strict quarantine measures to stop the rapid spread of the Sars-Cov-2 virus.
The lockdown prevented nearly 300 million migrant workers from returning to their jobs and paralysed global supply chains as the world's second largest economy shut down for three weeks.
A coal mine in Bulga in Hunter Valley, north of Sydney, pictured in 2015. Australia is an important source of raw coal and iron ore for China's steel industry
While workers have been told to return, factories have been slow to restart with some workers still unable or unwilling to return.
Some factories have had to be quarantined all over again when a worker tests positive to the virus.
A survey by the Cheung Kong Graduate School of Business in Beijing in late February found 45 per cent of firms had no way to resume work due to labor shortages while just 11 per cent said they would return to full production by the end of February, NPR news reported.
Funds management firm Plato Investments managing director Don Hamson said when firms returned to work, they would want high-quality Australian iron ore to limit pollution when producing steel.
'China is producing record levels of steel and we expect the long-term outlook to be pretty good,' he told the Sydney Morning Herald.
Mr Hamson said China would seek to stimulate its economy further by building infrastructure, which requires steel.
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Plato has been bullish on resource stocks, especially iron ore, in anticipation of this hoped-for increase in Chinese steel production.
Plato Investments has $5 billion in funds under management invested mostly in Australian and global equities.
The ASX-listed funds manager is part-owned by Pinnacle Investment Management Group, which is its responsible entity and issuer of its investment units.
Pinnacle reported an aggregate of $61.6 billion in funds under management in February across all its affiliated funds which it partly owns and manages.
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