Business & Economy

Iron ore, a lever to pull Australia, China out of trade war

By Rocío Otoya

Sydney, Australia, Dec 30 (efe-epa).- Iron ore is pushing Australia and China, the world’s largest exporter and importer of the raw material, to reach an understanding despite escalating trade tensions between the two countries.

Bilateral relations have strained throughout the year with several friction points, including import tariffs on several Australian products by China.

Barley, wine, beef, and coal are some products directly or indirectly affected by the trade war with China.

According to Australian experts, it is a retaliation against Canberra after it called for an international investigation into the origin of the Covid-19 pandemic, which first surfaced in the Chinese city of Wuhan.

However, iron ore, a critical product for the Australian economy and the Chinese, has been left out of the bilateral trade conflict.

Australia, which accounts for around 50 percent of global iron ore exports, earned more than AU$100 billion from the exports in 2019-20, mainly to China.

China accounts for 70 percent of the iron ore imports in the world for its steel industry.

“China sources two-thirds of its iron ore from Australia so (it) will be unlikely to jeopardize the trade,” economist Tim Harcourt, an international trade expert at the University of New South Wales, told EFE.

The price of iron ore has skyrocketed this year. In May, it was at $80 per ton and this month around $150.

The rising price has helped the Australian economy recover from the devastation caused by the Covid-19 pandemic.

Analysts expect the price to remain at over $100 during 2021.

Rod Tyers, an economist at the University of Western Australia, told EFE that the increase in iron ore prices is, in part, due to “stockpiling in anticipation of Chinese action against iron ore imports from Australia.”

Tyer also warned that it would be necessary to take into account “how long will it take for alternative sources of quality iron ore to be developed, particularly in Africa, where Chinese belt and road investments have been expanding.”

The warning coincides with a move by the Republic of the Congo to strip three Australian mining companies of their licenses this month and allow Chinese company Sangha Mining to mine a large deposit of high-quality iron ore in the country.

Australian analyst Mark Pervan, an expert at the Maccom Group, told public broadcaster ABC that he suspected that the move was due to the Chinese attempts to diversify its sources of high-quality iron ore.

“China is the world’s key customer but Australia is the world’s key supplier. That’s why analysts have said China wouldn’t act on Australian iron ore, as it would cost them lots,” Australian consulting firm Deloitte said in a statement this month.

The trade conflict with China has caused Australia’s trade surplus to fall below AU$ 2 billion, its lowest level in two years ago.

According to an analysis by Tyers and Yixiao Zhou, an academic of the Australian National University, a hypothetical scenario without any bilateral trade between Australia and China would cost the Oceanic country’s six percent of its GDP.

In contrast, the impact of no trade with Australia would be much lower for China, costing it all only 0.5 percent of its GDP.

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