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China eyes African prospects to iron out trade tension with Australia

Investing in largely untapped iron ore sources in Africa
might be Beijing’s answer to diversifying import sources

Growing Sino-Australian diplomatic and trade disputes have led to Chinese import bans on certain Australian products, but iron ore – Australia’s biggest export to China – has largely been kept out of the fray. Although China did impose new import procedures that could potentially hold up shipments, Australian iron ore exports to China have actually been rising, and a Chinese ban on Australian iron ore is generally thought of as unlikely given China’s dependence on the world’s largest producer for this key commodity.

China sources two-thirds of its iron ore from Australia, with this supply making up half of all iron ore consumed in China. Introducing an import ban now would also hurt China’s economic recovery just as the government is directing stimulus money into construction, which will require greater output from Chinese steel manufacturers and increase demand for iron ore.

Over the longer term, however, that could change as China considers diversifying to other iron ore sources, particularly in Africa. For China, the Australian trade dispute is coming on the heels of a trade war with the US, disruption in Brazilian iron ore production, and general global economic turmoil, which all combine to make investment into the exploration and production of African deposits increasingly worth the risks.

The African continent has similar levels of iron ore reserves as Australia, and the majority of these remain untapped. The signs are already there: In May, major Chinese steelmakers called on their government to increase both domestic iron ore production and investment into the exploration and development of iron ore deposits in Africa. In early June, China’s state-controlled newspaper Global Times threatened that China was willing to curb Australian iron ore imports if it felt backed into a corner and would “pay more and spend time to seek alternatives from Brazil or Africa”.

Source: https://www.lowyinstitute.org/the-interpreter/china-eyes-african-prospects-iron-out-trade-tension-australia

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