The big Chinese decision that will dramatically harm Australia – and why the Albanian government is seriously concerned

The crisis in China’s steel industry and the crackdown on debt-ridden developers will deal a major blow to the Australian economy and cost the government $3 billion in budget revenue.

Finance Minister Jim Chalmers has published new analysis of China’s slowing demand for iron ore, which will significantly reduce the value of Australia’s biggest export and cut mining companies’ tax revenues over the next four years.

“We are closely monitoring these developments because of their potential impact on our economy and our budget,” he said.

‘The weak Chinese economy and the recent decline in iron ore prices are further evidence that we are not immune to volatility and uncertainty in the global economy.’

The budget predicted iron ore prices would halve to just $60 a tonne by the third quarter of 2025, down from then-current prices of more than $100 a tonne.

Iron ore prices fell to $81.80 a tonne by the end of trading on Thursday, a level not seen since late 2022 as China buys less of the raw material used to make steel.

That was below the $83 per tonne level forecast by the Treasury for August 2024, highlighting how economic weakness in China, driven by falling demand for apartments, will be felt in Australia for years to come.

Every $US10 per tonne drop in the iron ore price equates to a loss of $500 million in potential government revenue. Furthermore, prices have fallen by 38 percent since the start of 2024.

China’s steel crisis and crackdown on debt-ridden apartment developers expected to cost Australian government $3 billion in budget revenue

Iron ore prices have fallen 7.5 percent in the past week alone after China’s Baowu Steel Group, the world’s largest steel producer, warned the downturn in the sector is worse than expected.

Hu Wangming, the multinational’s chairman, told Baowu’s half-yearly meeting that the results were “more difficult to bear than we expected”.

The steel crisis comes just six months after a Hong Kong court ordered the liquidation of apartment complex Evergrande, also putting developer Country Garden at risk.

Vivek Dhar, director of mining and energy research at the Commonwealth Bank, said Baowu Steel’s comments had spooked financial markets.

“The margins are very, very low and so negative that you could say, ‘Wow, the steel sector is bleeding away,'” he told Daily Mail Australia.

According to Mr Dhar, the decline in demand for steel – and therefore Australian iron ore – ‘has really accelerated since Evergrande.’

Apartment construction accounted for 30 percent of China’s steel consumption, a decline compounded by a slowdown in transportation infrastructure construction.

“Weak demand for steel is putting enormous pressure on steel prices,” he said.

‘Markets are abandoning hopes for stabilisation in the real estate sector.

‘Problem two is that the demand for steel in infrastructure often counterbalances the deteriorating real estate sector, which has also deteriorated.’

As recently as April, the Reserve Bank of Australia hoped that China’s infrastructure spending would offset a halving of demand for steel for residential towers compared to its peak in 2019.

‘Despite all this, overall steel demand in China has remained resilient, largely due to strong growth in investment in both infrastructure and manufacturing,’ the report said.

Finance Minister Jim Chalmers has published new analysis predicting that a bigger-than-expected fall in the price of iron ore, Australia’s biggest export, will reduce corporate tax revenues over the next four years

In 2020, Chinese President Xi Jinping’s Communist Party clamped down on the glut of new apartment buildings, creating “ghost towns” of empty towers.

The oversupply has caused house prices to plummet, with prices falling 4.9 percent in the year to July, according to China’s National Bureau of Statistics.

Existing homes fared even worse, with values ​​falling 8.2 percent over the year, even though the number of housing starts is 60 percent below the 2021 peak.

Anthony Albanese is the first Labour prime minister since 1989 to achieve two consecutive budget surpluses.

But the $9.3 billion surplus for 2023-24 was based on high iron ore prices, which boosted corporate tax revenues.

A budget deficit of $28.3 billion was forecast for 2024-25, rising to $42.8 billion in 2025-26.

Lower corporate tax revenues from iron ore shipments to China are expected to lead to larger budget deficits than the Treasury Department had anticipated unless government spending is cut sharply.

The Treasury Department lists iron ore prices without freight charges, which are typically about $10 per tonne lower than the price including transport costs.

By the close of trading on Thursday, iron ore prices had fallen to $81.80 a tonne, a level not seen since 2022, as China bought less of the raw material used to make steel