It is just over a year since the Australian government called for an independent investigation into the origins of the Covid-19 pandemic, triggering a furious response from its counterpart in Beijing.
Soon afterwards a series of tariffs, investigations and unofficial measures started to suffocate Australian exports to China in what seemed to be a sustained effort by Beijing to bring Canberra to heel.
A year on Australia shows little sign of buckling under the pressure. Its economy also seems to be weathering the storm with Prime Minister Scott Morrison last week witheringly describing the confrontation with China as “diplomatic atmospherics”. Beijing’s efforts had shown more bark than bite, the Australian leader added, agreeing with his interviewer’s comparison of the rhetoric around the trade embargo as being like a “Chinese lion dance”.
The latest remarks were more than enough to spark a swift rebuke from the Chinese foreign ministry, which has been berating the Australians on an almost weekly basis. “This is what we call ‘feigning ignorance’”, scoffed spokesperson Zhao Lijian, and it is true that the block on exports has had a punitive impact on some sectors of the economy, with lobster farmers, winemakers and coal producers all feeling the force of the Chinese fury.
Yet all of that is being offset by a record boom in iron ore sales, which were the key contributor to yet another increase in Australian exports to China of almost $600 million in April, or 4% more than March.
Sales of iron ore to the Chinese spiked to another monthly record of $10.6 billion, accounting for about a third of the value of Australian’s worldwide exports.
What’s galling for the Chinese is that they have triggered the boom. The bid to get growth moving again after China’s recovery from the pandemic has unleashed a surge in steelmaking. However, China’s mills get nearly two-thirds of their ore from Australia and prices have been spiralling upwards – from $60 a tonne just a year ago to as much as $230 earlier this month.
Frustration from the Chinese has fuelled new efforts to dampen demand, with a flood of reports in the local media last week that the State Council was preparing measures to “curb unreasonable prices”. The Global Times waved the flag dutifully, reporting that key companies in China’s commodity markets, including steel, were “collectively summoned”for patriotic discussions with officials last weekend.
Soon afterwards the newspaper was celebrating that these meetings were a key reason for a fall in the iron ore spot price this week to below $190 a tonne, substantially down on the record highs. “Among the most affected were iron ore exports from Australia, which has benefited massively from the sky-high prices in its main export – emboldening officials in Canberra to continue on their relentless provocation against China,” the Global Times hectored.
The problem for policymakers is that there is little alternative to Australian deliveries if the steelmaking surge is to continue. The National Development and Reform Commission has urged firms to boost local exploration efforts but domestic supply is never going to be a substitute for Australian ore, which has a higher iron content that’s prized by the steel producers. It would also require hundreds of mines to meet the shortfall and the effort would chew up huge quantities of energy at a time when the government is committed to reducing China’s carbon footprint.
A better option for Beijing is to get its steelmakers to step up their imports from other countries. A first priority is getting shipments back to pre-pandemic levels from Brazil, where Covid-related disruption and a tailings dam disaster has held back production. In the longer term there are hopes that the huge Simandou resource in Guinea will provide more of the supply as well. But developers of the mine have to build hundreds of kilometres of rail track and dozens of bridges and tunnels first. A start-up timeline of five years is optimistic, most analysts think. And even then, Australia’s geographical proximity will make its iron ore hard to beat. “You can’t tow west Africa or Brazil any closer to China,” one mining executive crowed to the Australian Financial Review this week.
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