The future of Australia’s coal exports look pretty assured. The International Energy Agency is forecasting that the growth between now and 2035 in China’s energy production will equal America’s, Europe’s and Japan’s current energy usage . Despite China’s falling carbon intensity, much of the expansion this will still come from coal. As I noted in a previous post, this was outlined in the Five Year Plan. But is the future of iron ore exports as assured? China is angry about the behaviour of the global cartel, and would like nothing better than to break it. The Financial Review has noted just that:
China wants to slash its reliance on Australia’s iron ore miners, detailing plans to secure 40 per cent of its iron ore imports from overseas mines under its ownership by 2015.
It is the first time that China has put a target on its ambitions to control its own destiny in iron ore.
The process of breaking the cartel may be well under way. The economist David Hale said this in an interview on the ABC:
DAVID HALE: There’s a greater opportunity for China to break the cartel and that opportunity lies in West Africa. There have been major discoveries over the last two or three years of huge new major iron ore deposits all over West Africa, New Guinea, Sierra Leone, Cameroon. And Australian companies have played a very active role in this.
Right now there are about 25 new mines to open over the next 5 years. By 2015 they could be producing 620 million tonnes of iron ore per annum. Global iron ore trade last year was 930 million tonnes. This is a huge increase in supply.
ALI MOORE: That’s 4 years away.
DAVID HALE: Four years away.
ALI MOORE: Is that realistic?
DAVID HALE: Yes, it is, and this could set the stage for undermining the cartel that RTZ, BHP and Vale in Brazil have had over the iron ore price over many years. Australia is part of this boom. There are many Australian companies playing a role in this, but they don’t have capital, they’re underfunded. Guess where they’re going for capital? China.
Maybe those low forward earnings multiples for Rio and BHP-Billiton (see the attached Deutsche reports) may not be so suprirsing after all.