Iron ore on railroad cars at Salanaha Bay Terminal in South Africa.
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SINGAPORE – As tensions between Australia and China continue to ease, Beijing must consider diversifying supply of a 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 it uses to make steel. China is the world’s largest steel producer.
Other Australian exports to China were hit by deteriorating relations between the countries as Beijing hit goods like wine and barley with tariffs. Canberra-Beijing bilateral relations deteriorated earlier this year after Australia backed a growing demand for an international investigation into China’s handling of the coronavirus pandemic.
So far, however, Beijing has spared iron ore from Australia, which analysts attributed to the lack of available alternatives. Australia is the world’s largest iron ore producer.
However, Peter O’Connor, senior metal and mining analyst at investment firm Shaw and Partners, says Beijing must now consider diversifying its iron ore supply.
“That direction or narrative we need to ponder that began a few years ago … was about the diversity of offerings. Where can China get them from, how can they diversify away from Australia and Brazil,” he told CNBC’s Street Signs Asia “” on Tuesday.
Brazil is the next largest iron ore supplier to China, but it has its own problems. In January 2019 a fatal dam disaster at an iron ore site in Vale prompted the Brazilian mining giant to stop production at ten locations. Vale is the second largest iron ore producer in the world and its largest market is also China.
Following that accident, Brazil struggled to get its iron ore exports back to 2018 levels, said Vivek Dhar, director of mining and energy resources research at the Commonwealth Bank of Australia.
Iron ore prices recently rose as demand from China increased and were further fueled by dwindling supply and disruption caused by storms in Australia. At the same time, China’s economy has largely rebounded from its worst coronavirus hit, driven in part by the introduction of incentives into infrastructure.