Australia is a key exporter of coal. © 123RF
Australia is a key exporter of coal. © 123RF

Falling Chinese demand hits Australian commodity producers

16 February 2016

The slowdown of the Chinese economy was the most important of the growing risks affecting global supply chains in the last quarter of 2015, according to the latest CIPS Asia Pacific Risk Index.

The index, which is produced by Dun & Bradstreet for CIPS and tracks the impact of economic and political developments on the stability of global supply chains, was up to 26.68 from 25.73 in first quarter of 2015.

This was the third record-breaking quarter in a row and was mainly due to supply chain risk from the Asia Pacific region.

Falling Chinese demand for industrial commodities like steel and coal has put a strain on Australian suppliers, while dry weather caused by El Niño weather phenomenon is threatening dairy output in New Zealand.

As New Zealand produces a third of global dairy exports even a small reduction in diary production could affect global milk prices, the index warned.

Drier weather could also start to threaten agricultural production in Australia.

El Niño is caused by a band of warm ocean water which occasionally hits the Pacific.

The index said that heavy industries in the north of China are proving to be a “stubbornly weak link for global supply chains”.

In response to lower demand from China and the country’s shift from coal as an energy source to hydro power, Australian commodity suppliers are lowering production.

However, it is the growing inability of Chinese customers to pay suppliers on time after relying on cheap credit from state lenders that is hitting producers hardest, the index found.

CIPS general manager Asia Pacific Mark Lamb said: “The latest CIPS Risk Index is a reminder that the prosperity of Australian businesses often depends on forces which are out of their control.

“Chinese credit risk, global commodity prices and even unforeseen weather changes all filter through supply chains and onto Australian balance sheets.

“Only by thoroughly interrogating supply chains can businesses prepare for and mitigate the impact of these forces upon them.”

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