How China is moving away from Australia due to iron ore famine

Greeting the world in 2021 was the news that China would accelerate its work on iron ore projects in Africa and Australia, a reminder of the country’s intention to strengthen its steel production stocks, as well as its strength as an influencer in the global market. .

Australia has long been a Chinese iron ore market, with huge Australian iron ore production and proximity to the two countries creating productive relationships.

Australia is the largest source of food for Chinese steelmakers, with about 60% of Chinese iron ore imports originating from Australian mines. But constant tensions between the countries have alarmed the iron ore and steel industry, speculating on the future of the Sino-Australian iron ore trade.

Relations between Canberra and Beijing have been met since the initial start of the Covid-19 pandemic in early 2020, while Australian policymakers have called for an independent investigation into the origins of the virus and China’s original solution to the Wuhan epidemic.

The Chinese response included the effective exclusion of Australian producers from the Chinese market in certain industries. From slapping tariffs on 80.5% on Australian barley, suspending imports from beef suppliers, to banning timber imports from Australian states, China has steadily stepped up pressure on the Australian government over the past year.

Australia remains vital for China’s iron supply

The proposed response to Chinese trade restrictions was to stop sending Australian iron to China. This is really the export that Australia needs China – in its economic and political strength, the Chinese state will not easily replace 60% of its iron ore supply.

The other major Chinese supplier is Brazil, which is battling Covid-19 infections in its mining sector, as well as high-profile mining accidents that have undermined confidence in the industry in recent years. Theoretically, Australia could deal a heavy blow to China by retaining the iron ore it craves, and perhaps speed up the resolution of tensions.

But things are never easy. Australia, like many other countries, is still dealing with the economic impact of the pandemic. As much as the war of words has unfolded since Prime Minister Scott Morrison, Australia is unlikely to cut off a market worth tens of billions of dollars at a time when the economic recovery is just beginning.

Despite tensions and despite China’s desire to move away from relying on Australia, the iron ore trade between the two countries is still booming.

“Australia remained the largest supplier of iron ore in 2020 with 732 million tonnes, compared to 691 million tonnes in 2019, mainly due to higher quality and favorable transport costs,” says mining analyst GlobalData David Kurtz. “China together imported 313.8 million iron ores from Brazil, South Africa and India, which is less than half of what China imports from Australia.”

Australia may now be the dominant supplier and will be necessary to supply China in the near future, but this may not always be the case. Even those relatively insignificant numbers of imports from countries other than Australia show that China is becoming increasingly serious about switching to Australian iron; India may have exported 44.8 million tons of iron ore to China in 2020, but that is an increase of almost 90% compared to 2019.

Chinese eyes for iron are on Africa

80% of Chinese iron ore is imported from overseas countries, but it is not clear how much of that iron ore is produced in mines owned by China. China’s domestic supply suffers from low ratings compared to major iron-producing countries such as Australia and Brazil, meaning the country has turned its attention abroad to iron.

Kurtz says China would anticipate a challenge in finding a market other than Australia and says it would be “unrealistic” in the next five years.

“However, China wants to expand its partnership in research or project development across other countries, mainly in Guinea,” he explains. “Simandou is one of such large projects, which is expected to have a capacity of 100 million tons for the production of iron ore. Its first production is expected to begin in 2025/26. “

Simandou itself, a 110-kilometer hill in the West African country, could be a significant boon to Chinese iron ore ambitions. Proponents of the site have branded it a “Pilbara killer,” and reportedly boasts the world’s largest untapped iron ore reserves.

Guinea is hosting several other significant projects, two of which are Kalia and Zogota, which have a joint production capacity of over 20 million tons. Both are expected to be operational by 2023. Perhaps the most resonant sign of Guinea’s iron ore potential is China’s interest in it – a consortium backed by China got a $ 14 billion deal to develop part of the Simandou project late last year.

China has been continuously developing its relations with African countries for several years; China has been South Africa’s largest trading partner for more than a decade, and Chinese Foreign Minister Wang Yi recently visited five African countries, visiting Nigeria, the Democratic Republic of Congo, Botswana, Tanzania and the Seychelles.

In terms of investment on the continent, China’s contributions have been described as smaller than Western countries ’contributions, but more efficient. Ching Kwan Lee, a professor of sociology at the University of California, Los Angeles, had previously examined Chinese state capital against global private capital by studying the Zambian copper and construction industries.

Lee attributes the impact of Chinese investment to their difference from Western: Western capital drives profit, and is extractive in nature. Meanwhile, Chinese investment is influencing the development strategies and national requirements of the recipient country – potentially facilitating better and more productive partnerships.

Those partnerships are bearing fruit – Shandong Gold, a Chinese mining company backed by the Shandong Provincial government, recently beat Western competition to buy Cardinal Resources and its Ghanaian assets. After a long back-and-forth with companies, including Nordgold, all bidding for the acquisition, Cardinal’s executives accepted Shandong’s offer in January.

Chinese news agency Xinhua reported that the first batch of iron ore sailed from the port of Sierra Leone to China earlier this year and was procured from the Tonkolili mine which was restored in Chinese ownership in 2020.

Although Australia can still expect to be China’s main supplier of iron ore in the foreseeable future, the signs point to an expanded role for African suppliers.