China moved this week on iron ore import rules — and the Australian media panicked, filling the internet with predictions of doom and gloom for our $79 billion per year star export.It turned out that the Chinese changes to the way they check iron ore coming into their country were more bureaucratic than political and that the new system was “streamlining” the process.However, there are two other factors to the iron ore story to be taken into account.On the positive side, the rising price for the commodity is going to lift the prospects for new, but smaller, Australian players getting into production.On the negative side, the latest export figures out of Tokyo and Seoul are really bad, meaning that any continuing downturn in manufacturing activity there will see much reduced demand for our raw materials, iron ore especially — and the skies would darken even more if those export performances are replicated by China.Japanese exports in April were down 21.9% on the same month in 2019 while exports for the first 20 days of May out of South Korea were down 20.3% year on year.There was a further indicator of economic uncertainty that came out of Beijing on Friday when, at the National People’s Congress, Premier Li Keqiang announced that China would not be setting an economic growth target figure this year due to “unprecedented times”.China will also be concerned that its exports to the US will be hit further after reading the results of an online poll of American consumers which found 78% would be prepared to pay extra for an item rather than buy a Chinese-made version, while 40% said they refused to buy anything China made.And, while calmer heads see no problem for Australian iron ore at present when demand is high and Brazilian supply in trouble, there may come a time when China will reduce its imports from Australia — not for political revenge but due to worsening global economic conditions and reduced demand for its end products.CBA said market iron ore concerns “overdone”Considering the bellicose language out of China aimed at Australia, the 80% tariffs slapped on our barley by Beijing followed by the ban on four of Australia’s largest meat export packers, it probably was not surprising that the media panicked on Thursday when the Chinese announced that they were changing the system of customs inspections of iron ore shipments arriving at their ports.At present, Chinese customs officers check the quality of every arriving shipment. But, from June 1, the customs people will check shipments only when the buyers request it.The first reaction to the announcement was that certain shipments, or suppliers, could be singled out. In other words, other exporters’ supplies could be waved through, but Australian ones singled out (the implication being they could be rejected or delayed).Vivek Dhar, who heads the commodities team at Commonwealth Bank of Australia (ASX: CBA), is much more relaxed about the changes.“We think market concerns over the rule changes are overdone,” he said in his latest daily note.Not only are the quality inspection times relatively short (one to two days), but any measures taken by China to penalise Australian iron ore exports would hurt China’s steel sector significantly given Australia accounts for just over 60% of China’s iron ore imports, he argued.And he points out that this announcement from Beijing suggests a different circumstance from the widely publicised delays in coal shipment approvals last year.At the beginning of February 2019 custom clearance times for Australian coal increased from about 25 days to about 40 days.But these delays were discovered only after they occurred — and not forewarned in official rule changes, Mr Dhar said.His views were backed up by a report out of Capital Economics in London which argues that, as the economic fiscal support unveiled by China on Friday is stepped up, Chinese steel output is likely to continue growing.“As result, China’s iron ore consumption is likely to be stronger than we had assumed,” the note said.Previously, said Capital, it had thought that high stocks and weak demand would eventually force steel mills to cut output.“But that now seems unlikely.”China needs Australian iron oreThere is no supplier able to fill any substantial gap if imports from Australia were markedly reduced, and Beijing’s hopes of revving up its economy depends on plentiful steel supplies later this year.The only substantial swing supplier, Brazil, is not able to play that role at present due to the impact of COVID-19 on that country’s economic activity.On Thursday, the number of deaths in Brazil from the virus reached 20,000 — and the number of people infected is a staggering 310,921.
These are my words now China can kick and scream and act all tough and bravado all they like, talking it big and mighty but the yanks do have their measure and Trump's unpredictable nature is exactly what they deserve there own straight back at them. Diplomacy at it's best needed now in these times.
FMG Price at posting:
$13.58 Sentiment: Buy Disclosure: Held
(20min delay)
