Weather News

Cyclone Veronica could impact Australian economy

Michelle Stanley and Kendall O'Connor, Monday March 25, 2019 - 12:04 EDT
ABC image
Cyclone Veronica's was felt at the port city of Dampier hours ahead of its arrival in the Pilbara. - ABC

Severe Tropical Cyclone Veronica could have a significant impact on the Australian economy and Chinese steel industry, with iron ore exports temporarily stopped from Port Hedland, the world's largest bulk export port, an analyst has warned.

Australia currently supplies about 60 per cent of the world's iron ore, and about 90 per cent of that comes from the Pilbara ports of Port Hedland, Dampier and Cape Lambert.

All three were shut down on Friday in preparation for the severe weather event.

Iron ore analyst Phillip Kirchlechner said depending how long the ports would be closed, the event could cost the nation's economy more than $1 billion.

"Based on iron ore exports out of Australia in recent years, which range from roughly $US60 billion to $US70 billion a year, if shut[downs last] about a week and there's no catching up of lost production later, then the impact would be around $US1–1.3 billion."

Mr Kirchlechner said that cost could be greater if the cyclone caused damage to mining infrastructure, further delaying a resumption of exports.

The Pilbara Ports Authority is uncertain when it will reopen its facilities, which have been closed for three days.

Markets react to supply fears

Markets reacted to the news of Tropical Cyclone Veronica on Friday, with supply concerns from the Pilbara in addition to causing a spike in the price of iron ore.

"Prices went up $US2.70, [but it is] not clear if prices will go up again," Mr Kirchlechner said.

"Traders, speculators, and users [of iron ore] will be looking for any announcements from the biggest producers like BHP for any information on damage and supply impact, and for how long.

"If the shutdowns are for long enough, that would also have an effect on the iron ore price and possibly exacerbate shortages the steel industry would face."

The price of iron ore is currently sitting at $US85.89 per tonne, down from a two-year high of just over $US90 per tonne in February, 2019.

Mr Kirchlechner said the Chinese steel industry would feel the impact hardest as it relied on iron ore imports from Australia and Brazil for 90 per cent of its supply.

"China's dependency on imports has actually increased greatly in recent years," he said.

"If there are any supply disruptions from its major suppliers — and Australia is by far the largest supplier — it would cause great concern."

Port Hedland's largest iron ore exporter, BHP, declined to comment, saying its main concern was for the safety of its employees.

In a statement, Rio Tinto said it was also focused on safety.

"As a precautionary measure, the ports of Cape Lambert and Dampier have been cleared of vessels and port operations have stopped," the statement said.

"We continue to work closely with DFES and local emergency services to align our activities with their community alerts to ensure our local workforce can prepare and secure personal premises and property as required."


© ABC 2019

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