·
China imports 60% of its iron ore
from Australia, and is heavily dependent on the commodity.
·
Other Australian exports to China
have been affected by the deteriorating relationship between the countries,
with Beijing hitting goods such as wine and barley with tariffs.
·
Beijing has, so far, spared iron
ore from Australia, which analysts attributed to the lack of alternatives
available.
·
China is likely to turn to a
country where they have been investing, according to Peter O’Connor, senior
analyst of metals and mining at investment firm Shaw and Partners.
SINGAPORE
— As tensions between Australia and China continue to simmer, Beijing needs to
think about diversifying the supply of one key commodity from Down Under,
according to an analyst.
Beijing
imports 60% of its iron ore from Australia, and is heavily dependent on the
commodity, which it uses to make steel. China is the world’s top producer of
steel.
Other Australian
exports to China have been affected by the deteriorating relationship between
the countries, with Beijing hitting goods such as wine and barley with tariffs.
Bilateral relations between Canberra and Beijing soured earlier this year after
Australia supported a growing
call for an international inquiry into China’s handling of the coronavirus
pandemic.
But
Beijing has, so far, spared iron ore from Australia, which analysts attributed
to the lack of alternatives available. Australia is the world’s largest iron
ore producer.
However,
Peter O’Connor, senior analyst of metals and mining at investment firm Shaw and
Partners, says that Beijing now needs to consider diversifying its supply of
iron ore.
“That
direction or that narrative that we need to think about, that started several
years ago … was about diversity of supply. It’s where can China source, how can
they diversify away from Australia, also Brazil,” he told CNBC’s “Street Signs
Asia” on Tuesday.
Brazil
is the next largest supplier of iron ore to China, but has its own slate of
issues. In January 2019, a
deadly dam disaster at a Vale iron ore site led the Brazilian mining
giant to halt production at ten locations. Vale is the world’s second-largest
iron ore producer, and its biggest market is also China.
Following
that accident, Brazil has struggled to get its iron ore exports back to 2018
levels, said Vivek Dhar, director of mining and energy commodities research at
the Commonwealth Bank of Australia.
Iron
ore prices recently spiked as demand from China rose, and have been further
stoked by dwindling supply and disruptions caused by storms hitting Australia.
At the same time, China’s economy has largely recovered from the worst of the
coronavirus hit, fueled in part by funneling stimulus into infrastructure.
One
possible source of iron ore
Shaw and
Partner’s O’Connor said, however, China has an alternative source that they
could fall back on.
“China
needs to diversify their supply, and I think the country where they will most
likely do that, which has been simmering for some time, is a country in West
Africa called Guinea … and probably largely China funded and developed,” he
said.
Guinea
says its Simandou region
boasts an estimated
1.8 billion tons of iron ore reserves — the world’s largest known, yet untapped
deposits.
Reuters
previously reported that Baowu Group, China’s biggest steel producer, plans
to invest in the Simandou iron ore mine and develop the deposit with
other steel makers. The news agency has also reported that a
China-backed consortium won a $14 billion government tender in Guinea to
bring the Simandou iron ore deposit into production by 2025.
CNBC