With China slowing, there’s a lot of concern about the complicated global pipeline of companies and shippers that dig stuff out of the ground and sell it to the Asian giant. One of the best tells about the state of China’s economy is the price of some of that stuff.
Quartz has written about how the price of iron ore (and of commodities in general) has tumbled sharply in recent months, causing pain for commodities-driven economies like Canada and Australia. In fact, today’s surprise rate cut by the Reserve Bank of Australia was brought on in part by increasing feebleness in the mining industry. Zooming in further, we can see why.
Here is a list of the mining companies most exposed to the price decline in iron ore, from S&P, showing Anglo-Australian multinational giants like Rio Tinto and BHP near the top, along with Australia’s Fortescue Metals. The chart shows “revenue exposure,” i.e., how much of a company’s sales come from selling iron ore, and similarly, how much its profitability (in the form of EBITDA—earnings before income taxes, depreciation and amortization) depends on iron ore prices.