China-Australia tensions ratchet up unease in Beijing about surging iron ore prices
- China is growing jittery about soaring iron ore prices amid heightened trade tensions with Australia, its biggest supplier
- But it will be tough for it to find alternative sources for the commodity, as it imports as much as 60 per cent from Australia
China may step up efforts to reduce steel demand as authorities and industry groups grow increasingly uneasy about high iron ore prices amid a trade dispute with its biggest supplier Australia, according to analysts.
China’s state-dominated steel sector, represented by China Iron and Steel Association (CISA), has been sounding the alarm about surging prices, urging the central government last week to help with market “malfunctions” and improve policies in the futures market.
“I don’t think the high iron ore price is a factor in the trade dispute between the two countries, but it’s probably not helping,” said Shane Oliver, chief economist at investment manager AMP Capital. “Not that there is much that can be done about it in the short-term beyond moving back away from using market forces to determine the price.”
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It comes on the heels of more than a year of strained relations that kicked off after Canberra called for an independent inquiry into the coronavirus, which prompted a series of trade actions from Beijing.
Australia and Brazil collectively export more than 80 per cent of the world’s seaborne iron ore supply, said Erik Hedborg, senior analyst at commodities firm CRU. China imports 60 per cent of its iron ore from Australia, and consumes more iron ore than any other nation, as it is by far the world’s largest steel producer.
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Although some Chinese steelmakers have gained from higher steel prices recently, the main beneficiaries of soaring iron ore prices have been companies like Anglo-Australian miners BHP and Rio Tinto, Brazil’s Vale, and their respective governments through tax revenue.
