Australian share markets hit by Chinese need for baby formula

Shares in some of Australia’s most-popular infant formula brands have been caught up in the market woes about the health of China’s economy.

Amid increasing concerns that the world’s second-largest economy will cool further in 2016, Beijing said China’s economy had only expanded 6.9 per cent in 2015, the slowest pace in 25 years.

Bellamy’s Organic has eased to 14.6 per cent while trans-Tasman producer a2 Milk has fallen 26.7 per cent in the past four weeks.

Despite struggling to keep their products on Australian supermarket shelves, infant formula makers are still reporting strong sales.

According to NAB agribusiness economist Phin Ziebell, demand for infant formula in China should continue to remain strong, particularly as the country moves from a manufacturing to consumption-led economy.

“There was the melamine scandal in 2008 and understandably people were terrified about that because food safety is a serious problem. That means for your infant formula there is going to big demand for product that isn’t adulterated with poison,” Ziebell said.

China continues to step out of the global dairy market in the past 18 months while it ran down inventories of milk powder, triggering a halving of prices for key dairy commodities.

NAB is forecasting a "slow recovery" of global dairy prices this year, which will be bolstered by a lower Australian dollar that it expects will hit 66 US cents by June.

"Australian prices are also likely to be supported by the ongoing international interest in our products," said NAB regional agribusiness manager Dave Davies.

"Free trade agreements such as the China Free Trade Agreement will only help this trade, especially if we can operate on a more level playing field with the New Zealand industry."

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