Markets: Slowing China, rising iron

Analysts may be nervous about China's GDP figures but iron ore investors appear to have little to worry about.

For sharemarket investors particularly concerned abut their mining stocks, perhaps the most important bit of economic data in recent months is released today. Around midday AEST China posts its second-quarter GDP figures.

Top officials from Australia’s most important trading partner are scaling back expectations. Chinese finance minister Lou Jiwei said last week in Washington DC the world’s second-biggest economy report economic growth of as low as 6.5 per cent or 7 per cent this year. (In reports from official agency Xinhua, this was later changed to 7.5 per cent.) That’s considerably less than an official target proclaimed by China’s leaders of 7.5 percent.

Oddly, this is having very little effect on one of Australia’s most important exports to China: iron ore. The spot price for iron ore imported through the northeast Chinese port city of Tianjin has increased every day this month bar one. On Friday it gained 56 US cents, or 0.5 per cent, to $122.31 and is up 4.8 per cent in July. As Morgan Stanley analyst Joel Crane says: “Chinese steel production is cranking.”

China’s 2013 steel production is now running at an annual rate of 796 million tonnes compared with total production of 711 million tonnes in 2012, says Crane.

Rapacious steel demand is feeding through to the share prices of the biggest iron ore miners. The biggest mining stocks have rallied after sharp falls as it has become apparent the iron ore price is not going to fall through the floor.

BHP Billiton shares are up 7.6 per cent since July 8 after they fell 21 per cent between February 19 when the stock was at $39 and July 8 when it was at $30.95.

Rio Tinto’s stock fell 30 per cent between February 14 when it was at $72.07 and June 25 when it was at $50.24. The shares have since increased 9 per cent.

Fortescue Metals shares plunged 46 per cent between February 14 when they were at $5.39 and June 24 when they were at $2.92. The stock has since risen 21 per cent. 

Perhaps investors do indeed believe China’s finance minister Lou when he says 6.5 per cent or 7 per cent GDP won't be a big problem. If BHP Billiton, Rio Tinto and Fortescue Metals shares continue their upward climb, such economic growth statistics will indeed not be a problem for investors who bought the mining stocks at the right time.