Beijing Has No Choice but to Buy Australia’s Iron Ore: Economist
Despite politically motivated trade sanctions on Australian goods, Beijing has been left buying Australia’s expensive iron ore by the boatload. Professor of Economics at the University of New South Wales (UNSW), Richard Holden, said that Canberra holds a great deal of influence over Beijing, who has nowhere else to turn to meet its ravenous iron ore demand, even if it wanted to. “We’ve actually got quite a lot of leverage with China in this instance, which is that they need a lot of iron ore,” Holden told The Epoch Times. “And they don’t buy iron ore from us because they want to be particularly nice to Australia.” “They buy it because we produce a lot of it, we produce it very efficiently and effectively, and we don’t have some of the situations that have led to the iron ore price going up so much, like when Brazil had so many issues with supply.” Brazil, China’s other primary source for iron ore, has been forced to reduce its production since earlier this year after severe rains and floods severely impacted mining site output. Exacerbated by a lack of supply, China’s unabated demand for the mineral had propelled iron ore prices to an unprecedented US$200 per tonne in May. It continued to stay above that amount throughout June. A man works in front of a furnace at a steel plant of Dalian Special Steel Co Ltd. in Dalian, Liaoning Province, China, on June 20, 2018. (Reuters)The result has seen Australia’s economic lifeblood—it’s export industry—surpass a record $40 billion (US$30 billion) in June, of which more than a third—or around $15 billion (US$11 billion)—was from iron ore shipments to China alone. However, Holden warned that Beijing would not hesitate to switch to a new source of iron ore should the opportunity arise, particularly given it had previously done just that after slapping sanctions on Australian wine, barley, beef, and lobsters. “I think China’s demonstrated in recent times a willingness to use that leverage—they’ve done it with other types of export, where it didn’t matter that much to Chinese consumers whether they were drinking French wine or Chilean wine.” “If that happens, I’d be very worried,” Holden said. “How likely is it to happen? I think probably not that likely.” Beijing had previously threatened to diversify its sourcing of iron ore, and last month signed a deal that could oversee the development of a massive project in Africa that could deliver 100 million tonnes of iron ore per year. A laborer works at a cold-rolling mill of the Wuhan Iron & Steel Group on the outskirts of Wuhan, capital of central China’s Hubei Province, on Aug. 22, 2006. (Alfred Cheng Jin/Reuters)Australian Strategic Policy Institute Director of Defence, Strategy and National Security, Michael Shoebridge, argued that Australian iron ore had been protected from “Chinese state coercion” because of its overwhelming value to China’s own economy. China, the world’s biggest steelmaker, utilises iron in the production of steel, which sees applications ranging from the construction industry to military-class submarines. Shoebridge also pointed out that African iron ore mines tended to underperform compared with Australia’s refined and highly advanced production methods. “The reliability and scale of other producers have not been able to match Australian suppliers, and much of this is unlikely to change fast—sovereign risk in a number of African states remains an enduring problem,” Shoebridge told The Epoch Times in an email. “Australia’s comparative advantages from the nature of the deposits and the high technology techniques of the mining companies make Australia the highest volume, most globally competitive producer of iron ore. That is an enduring advantage supported by continual investment,” he said.
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