Iron ore in railway wagons at the Salanaha Bay Terminal in South Africa.
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SINGAPORE – As tensions between Australia and China continue to simmer, Beijing needs to think about diversifying its supply of a key Down Under commodity, according to an analyst.
Beijing imports 60% of Australia’s iron ore and depends heavily on the goods it uses to make steel. China is the world’s largest steel producer.
Other Australian exports to China have been affected by the deteriorating relationship between the countries, with Beijing granting tariffs on products such as wine and barley. Bilateral relations between Canberra and Beijing worsened earlier this year after Australia backed a growing call for international research into the manipulation of the coronavirus pandemic in China.
But so far, Beijing has saved Australia’s iron ore, which analysts attribute to the lack of available alternatives. Australia is the world’s largest producer of iron ore.
However, Peter O’Connor, a senior metal and mining analyst at investment firm Shaw and Partners, says Beijing must now consider diversifying its iron ore supply.
“This direction or that narrative that we have to think about, which started a few years ago … was about the diversity of supply. It’s where China can come from, how they can diversify away from Australia, too of Brazil, “he told CNBC’s” Street Signs Asia “on Tuesday.
Brazil is the next supplier of iron ore in China, but it has its own list of problems. In January 2019, a deadly disaster at a dam at an iron ore deposit in Vale led the Brazilian mining giant to halt production at ten locations. Vale is the world’s second largest producer of iron ore and its largest market is also China.
Following this accident, Brazil has struggled to recover iron ore exports to 2018 levels, said Vivek Dhar, research director of mining and energy products at the Commonwealth Bank of Australia.
Recently, iron ore prices rose as China’s demand increased and have been further triggered by declining supply and disruptions caused by the storms that hit Australia. At the same time, the Chinese economy has recovered largely from the worst impacts of the coronavirus, fueled in part by channeling the stimulus into infrastructure.