When you play the game of iron, you either win or you……..

There’s no doubt that of all the major economies, China’s been the first to recover.

With that has come uber-demand for key steel-making bulks, iron ore and coal.

Given iron ore is our largest export and also because China makes up more than 35% of our total exports, it’s good news for Australia in the short term.

And, these higher prices are what’s predominantly funding the Budget spend, announced today.

The chart below shows the monthly change in spot prices for bulk commodities (predominantly iron ore and coal), measured in SDR terms to remove exchange effects.

After a massive 22% monthly increase in December (boom) and 9% in January (mini-boom), we started to give some of the head snapping growth bank in February and March.

But April’s print released a week ago marks a reacceleration of prices.

Why? That’s easy:

1. Demand > supply + port stockpile rundown = higher prices

2. Inability to replace Australian exports = advantage Australia.

I’m looking forward to the May and June prints to see if this consolidates, increases, or perhaps does something else.

But is an Australian iron ore winter coming?

While this is all great in the short term, we know China is working towards doubling its non-Australian iron ore sourcing from 20% to 40%.

That will deliver China some ‘price making’ leverage.

We still have time before that can happen, and so, and as I’ve mentioned before, it’s time Australia diversifies its export customer base in order to avoid an export winter.

And that has absolutely nothing to do with China anxiety - it’s simply good risk management for any country or business to ensure it is never reliant on just one customer - as Australia currently is on China.

Because when you play the game of iron, you either win, or you diversify.

Mike Ganon.