Here’s how Evergrande’s financial crisis is affecting ASX miners

Highlights

  • ASX-listed iron ore players are under pressure due to a significant slump in iron ore prices and the current Evergrande financial crisis.
  • Evergrande had sold most of its properties at heavily discounted rates to keep its business afloat.
  • Evergrande's financial crisis has dampened the demand for Australian iron ore in Chinese steel industries.

Shares of ASX-listed iron ore miners, including Rio Tinto (ASX:RIO), Fortescue Metals Group (ASX:FMG) and BHP Group (ASX:BHP), were already under pressure due to a significant slump in iron ore prices. Now, the current Evergrande financial crisis has added insult to injury.

The Chinese property giant is under huge financial trouble while traders and investors are worried about its spillover risks to the economy.

The property giant had made aggressive steps to expand and become the country’s biggest real estate company by borrowing US$300 billion. Beijing, however, placed a cap on the amount of property that can be owned by mega real estate groups.

The rule introduced last year has forced Evergrande to sell out its properties at heavily discounted rates to maintain cash flow and to keep the business afloat.

Related Article: How leading ASX-listed iron ore miners are performing amid falling iron ore prices

Now, the real estate player is struggling to repay interest payments on its debts, and the uncertainty has impacted the Company's shares by nearly 85% in the last year.

Evergrande crisis’ impact on ASX miners

Australia is one of the leading suppliers of minerals to China, especially iron ore, and is the hardest-hit sector of the country due to Evergrande’s financial crisis. China is the world’s biggest importer of iron ore, which uses most of it to produce steel.

Iron ore mine

Iron ore mine | Source: © Intst | Megapixl.com

Nearly half of the steel produced in China is used in the country's construction sector. The current spillover of Evergrande’s financial crisis has dampened the demand for Australian iron ore in China’s steel industries because of subdued demand for steel in the construction sector.

Related Article: Explained: What is Evergrande crisis all about?

Reflection of Evergrande’s crisis on iron ore prices

The reflection of the property giant's crisis can be easily witnessed in iron ore trading prices. The base metal was trading at a record high level of nearly US$220 per tonne during July 2021; however, the prices tumbled to less than half of its record high level of US$230 per tonne to trade at US$104.5 per tonne, as of Tuesday.

Iron ore price fall

Iron ore price fall | Source: © Argus456 | Megapixl.com

Must Watch: How did ASX wrap amid Evergrande's fiasco?

Global iron ore miners were already struggling to get substantial earnings because of lower demand for the base metal amid production curbs in China, as the nation aims to attain carbon neutrality by 2060. Moreover, the current Evergrande crisis has further pushed iron ore to surrender.

Bottom Line

ASX-listed iron ore miners are struggling hard due to the ongoing chaos in the Chinese steel industry. Initially, the prices of iron ore slumped due to production curbs in China, and now the demand for the base metal has been plummeting due to lower demand for steel in the country’s construction sector.

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