Trump's Infrastructure Plan a Boon for Iron Ore, Cormann Saysby
U.S. President Donald Trump’s plan to upgrade the nation’s roads, ports and bridges will drive demand for steel and support iron ore prices, Australia’s Finance Minister Mathias Cormann said.
“The U.S. and the Trump administration has put out a very ambitious infrastructure investment program" and the steel will have to come from somewhere, Cormann said in an interview in Washington. "So global demand for steel, we believe, will continue to require significant exports of Australian iron ore.”
The price of iron ore has slumped almost 30 percent since Chinese Premier Li Keqiang last month signaled plans to cut his nation’s steel capacity. The world’s No. 2 economy is Australia’s biggest trading partner and iron ore exports account for more than 3 percent of Australia’s gross domestic product.
Iron ore has had a volatile 18 months. It slumped to a low of just over $38 in December 2015 then steadily rebounded until it reached a peak of just under $95 in February this year before retreating back to around $65.
Cormann played down fears that Trump would upend the global economy by unleashing a wave of punishing tariffs or erecting other barriers in an effort to shrink the nation’s trade deficit.
“It’s early days in terms of the U.S. administration,” he said. “Freer, more open trade helps to lift living standards. It helps domestic business to get access to markets around the world and it helps consumers get access to competitively priced, higher-quality products.”
New Growth Cycle
“Across the world the global economic outlook is improving," Cormann said. "We hope that this is the beginning of a new growth cycle."
For the domestic economy, Cormann played down fears that the nation’s two biggest cities are experiencing a property bubble. Strong demand is driving house price gains and the government is working on measures to boost supply, Cormann said.
"We are considering a range of options on how we can appropriately provide incentives and working with the states to provide the appropriate avenues to increase supply," he said. Further details will be unveiled in the nation’s annual budget set to be announced in May.
Australia’s regulators have been ratcheting up curbs on mortgage lending amid growing concern about the risks posed by soaring house prices. Last week the Reserve Bank of Australia warned that one-third of mortgage holders have either no buffer or less than one month’s repayments. While record low interest rates, buoyant population growth and investor demand have pushed up prices, wage growth has failed to keep up, resulting in the income to price ratio becoming increasingly stretched.
The property boom is being led by Sydney, where average home values surged nearly 20 percent in the past 12 months, stoking concerns that home ownership is increasingly being pushed out of reach for younger Australians and those on moderate incomes. Treasurer Scott Morrison has signaled that next month’s budget will include measures to address housing affordability but indicated the government intends to move cautiously. “Dealing with housing affordability must involve a scalpel, not a chainsaw,” Morrison said in a recent speech.