Iron ore miners riding high in Chinese EVs

BHP, Rio Tinto and Fortescue Metals Group (FMG, Australia's three biggest iron ore producers, are beneficiaries of China's EV boom which is soaking up material previously destined for the country's once-flourishing property sector. The connection between events in China, Europe and Australia, has been revealed over the past few weeks in economic data from the three regions. In China, EV production is accelerating rapidly, accounting for 60% of the world's 14 million new passenger vehicles this year, according to the Bloomberg news service. In Europe, there's a whiff of panic in the air with the President of the European Commission, Ursula von der Leyen, launching an anti-subsidy investigation into the flood of Chinese EVs, which are threatening the future of big European car makers. In Australia, iron ore exports to China have been rising just as investment analysts had been forecasting a fall caused by China's property development woes. Iron ore importance previously undetectedThe importance of China's EV industry to iron ore mining has not previously been identified, partly because China has traditionally been seen as a car importer thanks to strong demand for luxury European brands such as BMW, Mercedes and Audi. The flip has occurred towards the bottom of the price range, led by Chinese mass producers of EVs such as BYD, Geely, Great Wall and SAIC. BYD's Atto 3 model is an example of China stealing a large slice of a market once the preserve of European small front wheel drive cars such as Volkswagen's Polo and Golf. Slow sales of VW's small EV leader, the ID.3, which competes directly with the Atto 3, has forced VW to cut EV production with the official explanation being lack of demand without directly blaming cut-price Chinese competition. von der Leyen didn't dodge the Chinese issue when she announced an inquiry into Chinese car sales in Europe, signalling that the outcome could be an increase in tariff protection for Europe's car makers who have been slow to embrace the shift to EVs. Automotive car industry analysts, such as Phillippe Houchois from Jefferies, an investment bank, reckon European car makers are years behind China in the development of an EV industry. London-based Houchois told the Financial Times newspaper earlier this month that Europe has "a two-year window to get its act together", a gap which von der Leyen hopes to lever open a little further with her anti-subsidy inquiry. Enter AustraliaAustralia's iron ore miners are not directly involved in the EU v China EV dispute, they're simply pocketing the proceeds from an unexpected windfall in iron ore demand and a price which was widely expected to fall, but which has been rising for much of the year. It's not easy to see the dots which connect Australian iron ore with Chinese steel production and European EV sales. Most mining industry analysis has focused on the crisis in Chinese property where apartment construction has slowed significantly and major developers have been edging towards insolvency. The property crisis was seen as a factor in the iron ore price falling to a low this year of US$98/t in May, taking BHP's share price down to A$42 and FMG down to A$19. Since touching those low points, and despite no obvious recovery in the Chinese property market, the iron ore price has been rising, reaching US$123.50/t last week, as have the share prices of the miners. BHP is back to A$43.83 and FMG has risen to A$20.39. Barrenjoey, a Sydney-based investment bank, noted a surprise 5% increase in Australian iron ore exports in August, as Mining Journal reported last week in a story dealing mainly with coal.The Chinese EV export boom has now been identified as a key factor in stronger-than-expected iron ore demand with a former FMG business development manager in China telling the Australian Financial Review newspaper last week that EV production was the key to the higher iron ore price. Shanghai-based Bin Jun Zhuang said China remained the world's manufacturing centre with a massive expansion of EV production as well as domestic infrastructure, which required large amounts of steel. "Although steel production has plateaued, the demand for steel, and therefore for our iron ore is still strong despite the soft property market," he said. Von der Leyen said, when announcing the anti-subsidy investigation that Europe was open to competition, but not a race to the bottom. China responded through its Commerce Ministry saying the inquiry was "naked protectionism". Australian miners, which supply 70% of China's annual iron ore consumption, just keep digging.

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