SYDNEY–Slugged by weaker prices, spiraling costs and simmering anxiety over China’s economic slowdown, Australia’s iron-ore producers are finally getting a welcome shot in the arm.
The longest slide in the Australian dollar since the financial crisis is lifting the bottom line of companies from BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RIO) to smaller players like Atlas Iron Ltd. (AGO.AU) and Mount Gibson Iron Ltd. (MGX.AU) that export the key steelmaking ingredient.
The so-called Aussie has slid 11% in the past three months to around 92 U.S. cents–having soared above parity with the U.S. dollar in 2010 and traded near historic highs for much of the past three years.
The larger iron-ore producers, which tend to report in U.S. dollars, are benefiting from the resulting sharp drop in local costs like wages, while their smaller rivals are getting significantly more income when repatriating their U.S.-denominated earnings into the local currency.
In both cases, the impact of the weaker dollar is likely to feed through into the profits of Australia’s iron-ore producers, many of which are due to report earnings next month.
“We’ve had a period where the Aussie held up very strongly and really took some time to catch up with what commodities have done, so this is no doubt a positive,” said Matt Riordan, a Sydney-based money manager at Paradice Investment Management. “The question is where the currency and commodity prices go from here.”
Once the engine of Australia’s economy, helping the nation stave off a recession during the global financial crisis, the mining industry overall has been hurt by a sharp slowdown in prices of many commodities as China’s economic growth has cooled. Industrializing China is Australia’s biggest trading partner and the biggest buyer of its raw materials.
Despite a small uplift in recent weeks, iron-ore prices remain well below their peaks in early 2011 and are about a fifth lower than their high this year. At the height of worries about a hard landing in China last year, the price fell below US$87 a ton, compared with a record high US$191.90 a ton. The falling Aussie has helped offset some of that weakness.
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