There is no doubt that Brazil's production is declining- so the truth is, where does China turn? To North Korea? Unless the UN sanctions on mineral exports from the pariah nation were lifted, China would risk enormous damage to its reputation by going down that path. The central premis of the article has a ring of truth about it.
The link may not have worked- so the article in full:The untouchables: Australia's iron ore producers shrug off China moves
The Australian government and our major iron ore producers are desperate to characterise China’s decision to change its iron ore customs procedures as, at worst, meaningless and, at best, a positive for streamlining the trade.
Neither the government nor BHP, Rio Tinto and Fortescue want to join the dots connecting the increasingly toxic diplomatic relations between the two countries and the iron ore trading relationship. However, it certainly sent a shiver through the prices of all three iron ore heavyweights.
But the Global Times, a mouthpiece of the Chinese Communist Party certainly made the link. "China amends inspections of iron ore imports as trade tensions with Australia rise", was its headline on Thursday.
Having witnessed the Chinese introduce an 80 per cent tariff on Australian barley imports earlier this week, which comes hot on the heels of the ban on beef imports from four abattoirs, it isn't a huge leap of logic to assume China is looking to its trade big guns to issue another threat.
At first blush the customs changes China will impose from June do not appear particularly onerous.
The plan is to abandon the traditional practice of having all shipments inspected by customs and move to a system whereby Chinese customers can ask for an inspection. The potential problem for Australian exporters is that their shipments could be targeted for inspection when Brazil, China’s other major iron ore supplier, may not.
Using the Global Times once again as a proxy for what the Chinese government is looking to say, "It seems the Australian government has no intention of sowing new troubles in its trade with China, but the possibility of deteriorating tensions escalating into a trade war should not be ignored," the newspaper’s editorial said on Thursday.
Just in case anyone was in doubt as to whether the customs changes aren't a shot across Australia’s bows here is another taste of the editorial.
"Given the principles of free trade and reciprocity to which China has long adhered, there are reasons to believe that China will not take the initiative to start a trade war so long as no party deliberately escalates tensions further. However, we hope the Australian [government] can release more goodwill and take more measures to repair its relationship with [its] largest trading partner China."
The latest escalation in tension between the two countries is the result of Australia’s push for a formal investigation into China’s handling of the COVID-19 outbreak. Banning some beef exports and killing the barley trade is not particularly important to Australia’s overall exports.
China has explained the tariffs on barley as a response to dumping the grain on the Chinese market, and beef restrictions as being quality issues.
It is understandable that Trade Minister Simon Birmingham wouldn’t take the bait and escalate the brawl with China on the back of barley and some beef.
Iron ore is completely different. It is our major export and was worth $63 billion last year. Any significant move by China to reduce or handicap imports of Australian iron ore would be a disaster for our economy and for three of our largest companies.
However, the reality is that China imports 60 per cent of its iron ore from Australia and replacing this supply from another country would be impossible. The only other significant producer is Brazil’s Vale which is currently caught in the middle of COVID and whose production has been impeded as a result. Brazil’s supply restrictions are the major reason iron ore prices have been rising over the past couple of weeks
Coal is a more vulnerable commodity if there is an escalation in the trade war. For more than a year Australian exports to China have been held up in certain ports for up to 60 days in what has been described as a move targeting Australian producers.
China has plenty of thermal coal in its own backyard so it could more easily pivot to local suppliers.
When it comes to iron ore, China needs Australia as much as Australia needs China. This bout of action in iron ore looks more like China sending a message, rather than a threat it could act on.
But spare a thought for other Australian agricultural exporters to China. While beef is the largest within this group, other major agricultural products include alcohol, wool, fruit and nuts and dairy produce. It is these commodity producers that should be sweating on diplomatic relations.
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