Australian stocks gave up 5.5 per cent in early trading Friday in response to Wall Street falling to a five-year low, dpa reported.
The ASX 200 dropped 223 points, or 5.1 per cent, to 4,097.
The market was spooked by news reports that iron ore customers in China were delaying shipments, in the belief that prices for spot deliveries would fall below long-term contract prices because of withering global demand.
Coal and iron ore are the biggest exports and any diminution in earnings from these commodities would have a big impact on government tax revenues and on its spending plans.
"(Delaying shipments) says that the demand for iron ore in China is a lot softer than it has been," said Goldman Sachs JB Were commodities analyst Malcolm Southwood.