China slashes steel exports to Australia by 50 per cent to ‘wean’ itself off nation’s iron ore industry
In a sign of things to come, China has cut one export to Australia by more than half in what will be a devastating blow for a key Aussie industry.
Beijing boasts it has slashed steel exports to Australia by more than 50 per cent. And it insists efforts to “wean” itself from Aussie iron ore are only just beginning.
Government-controlled media this week declared that the “world’s largest steel exporter” was taking “measures to cut output (and) restrict exports”. This would “weigh on Australia’s infrastructure construction and economy,” the Global Times report predicts.
It quotes an unspecified Chinese steel exporter as saying the trend is “set to further accelerate”.
In recent weeks, Beijing has boosted taxes and axed rebates on steel exports. It’s also hiking tariffs on iron-ore imports.
This is in stark contrast to efforts to rein in surging raw materials costs by selling off national stockpiles. Last month, one such release involved selling 20,000 tons of copper, 30,000 tons of zinc, and 50,000 tons of aluminium to “ensure market stability”.
RELATED: Ominous sign for Aussie iron ore
Workers prepare to lift a bundle of steel reinforcing bar with a gantry crane at a metal stock yard in Shanghai, China.
“This will weigh on the economies of a number of countries, including Australia, which relies heavily on steel imports from China,” research director Wang Guoqing from the Beijing Lange Steel Information Research Center is quoted as saying.
“As Australia reboots its economy, demand for steel is set to further jump with the rollout of more housing and infrastructure construction. That, combined with dwindling imports from China, will only widen the supply gap, which no other country could fill.”
Steely resolve
Prime Minister Scott Morrison last year declared trade with China “has never been stronger” amid an unexpected iron-ore price surge. Expectations were that China’s reliance on Australian iron would inoculate the sector from its unfolding efforts at economic coercion.
At first, this hope seemed vindicated.
Iron exports have broken records for both export volumes and prices in recent months. The boom has been credited with saving Canberra from a Covid-induced economic crisis.
Now, such hope appears to be misplaced.
“Some Western media reports have hyped … that Beijing cannot ‘wean itself’ off the metal,” the Chinese Communist Party-approved report notes. Now it insists falling output and exports would sap China’s demand.
“The bulk commodity is deemed as a pillar of the Australian economy”.
China relies on Australia for 60 per cent of its iron ore imports. This represents about 70 per cent of Australia’s iron ore production.
The Beijing report states Australia relies on China for 30 per cent of its processed steel. But exports to Australia represent just 1 per cent of China’s output.
“China’s shrinking steel supply, against the backdrop of deteriorating bilateral relations, will likely lead to a steel shortage for the recovering Australian economy,” the report quotes analysts as saying.
Bend the knee
“Somehow, Australia is jumping up and down again and again. It is like chewing gum stuck to the bottom of China’s shoe. Sometimes you just have to find a rock and rub it off,” Global Times executive editor Hu Xijin declared last year.
His Chinese Communist Party mouthpiece is now threatening an economic “domino effect” resulting from its efforts to slash Australia’s iron ore exports and steel supplies.
Analysts say Beijing has been seeking to punish Canberra as an example to the rest of the world of the consequences of daring to contradict the emerging world power. It took umbrage to Canberra’s call for an open, honest, international investigation into the source of the Covid-19 pandemic. Australia’s stance on the South China Sea, the Himalayas and international espionage attempts haven’t helped.
But, so far, Beijing’s efforts at economic coercion have had limited effect.
It has banned several Australian meat processing plants under allegations of contamination. It also intervened in the coal, seafood, barley and wine trades. The United States has largely stepped into the gap as a replacement source of coal and agricultural products for the Chinese market.
However, the value of these exports to Australia’s economy is nothing in comparison to iron ore.
In 2019-20, exports reached $100 billion. Last financial year, this grew to $149 billion.
Now Beijing is blaming falling exports, domestic demand and carbon emission cutback targets for the market shift.
But it’s also been pressuring Brazil to shake off its Covid shutdowns, repair its iron-ore mines and dramatically increase production. It’s also investing in the vast Simandou mountain range mine in Guinea, West Africa.
A BHP freight train carrying Australian iron ore to port. Australia ships around a third of its overall exports to China.
Rock and hard place
US President Joe Biden says he has Canberra’s back: “The US is not prepared to improve relations in a bilateral and separate context at the same time that a close and dear ally is being subjected to a form of economic coercion.” The US, he says, is “not going to leave Australia alone on the field”.
But history shows it’s not that easy.
Australia issued a ban on iron ore exports to Japan in 1938 as the world became increasingly convinced that Southeast Asia was headed for war. The justification was not to give Tokyo the steel it would later use against us in the form of bombs and battleships.
University of WA PhD candidate Nathan Watson argues Canberra may be facing pressure for a similar ban once again.
“How will Australia respond if the United States decides that all trade with China that might enhance its war fighting capabilities, including trade between Australia and China, must stop?
“This may sound like an alarmist question, but it shouldn’t.
“The possible role of Australian iron ore in China’s naval build-up has already been highlighted by some analysts and will likely face increasing scrutiny from the US in the years ahead.”
Canberra could soon find itself in an untenable position.
“In a protracted Cold War scenario, the US could even link the issue of Australia-China trade to the reliability of its ANZUS alliance commitments,” Watson argues. “The point here is that if Australia wishes to separate its economic interests from security issues, a new Cold War will make that extraordinarily difficult.”