Australian mining stocks surge

Australian mining stocks have surged since 30 October 2020 following skyrocketing resource prices and export demand. Australian resources stocks and companies that support the resources industry, as represented by the S&P/ASX Resources Index outperformed the broad Australian equity market, as represented by the S&P/ASX 200.

Figure 1 – Australian resources versus S&P/ASX 200 performance

^{Source: Bloomberg, 30 October 2020 to 25 January 2021}

Export demand

Export demand for Australian resources has surged despite ongoing tensions with China. BHP reported record volume of iron ore production in H2 2020. China iron ore November demand grew 8% YoY (+15% YoY October). Australia’s current account surplus (exports exceeding imports) reached its highest point as a percentage of GDP since 1973 during Q3 2020.

Figure 2 – Australian Current Account (% GDP)

^{Source: Bloomberg}

The iron ore price surpassed US$160 per tonne in January 2021, the highest it has been in 10 years. Westpac commodity index which is a composite futures basket weighted according to their contribution to Australia's total commodity exports reached a 9 year high (figure 4). The index includes - gold, crude oil, iron ore, LNG, coal, base metals (such as copper, lead, zinc, nickel and aluminium) and rural commodities (such as cotton, wheat, sugar and wool).

Figure 3 – Iron Ore Spot Price Index 62% Import Fine Ore CFR Qingdao

^{Source: Bloomberg}

Figure 4 – Westpac Australian Export Commodity Futures Index

^{Source: Bloomberg}