Australian mining stocks fell sharply on Monday as concerns over China’s economic direction and potential trade war risks weighed on the market. China’s Standing Committee of the National People’s Congress’s recent $2.5 trillion (12 trillion yuan) stimulus package disappointed investors by focusing on reducing local governments’ debt rather than boosting domestic demand.
Iron ore prices fell significantly, with futures in Singapore falling 1.8% to $100.75 a tonne on Monday, following a 3% decline last Friday. This pressure has worsened as the real estate sector continues to weigh on the Chinese economy. Australia’s mining sector responded, with the S&P/ASX 200 Resources Index falling 2.8% on Monday. The main players also fell. Iron Champion (ASX:CIA) fell 10.08% to $5.62, Fortescue (ASX:FMG) fell 6.85% to $18.21, BHP Group lost 3.99% to $41.67 and Rio Tinto fell 3.46% to $119.04.
Vivek Dhar, chief strategist at the Commonwealth Bank, noted that while markets were hoping for stronger stimulus, further infrastructure investment would be needed for China to reach its 5% growth target. ANZ analysts suggest Beijing’s strategy leaves room to assess the impact of future US policies. Trump’s threat to impose a 60% tariff on Chinese goods adds uncertainty, with ANZ predicting the average tariff will rise to 22% by 2025 from the current 13%.
The iron ore market has already faced significant pressure, falling more than 25% this year due to weak demand and rising steel exports. Inventories have expanded to seasonal highs and consumer inflation in China remains subdued, raising questions about the effectiveness of current stimulus. “Continued stimulus is essential to pull China out of deflation,” said Citi analyst Xinyu Ji.
The market’s attention now turns to China’s Politburo meeting and the Central Economic Work Conference in December, where further pro-consumption measures could be unveiled.