China puts Australia on notice with push to diversify iron ore

Beijing threw the spotlight on trade tensions with its top commodities supplier, Australia, after the government’s economic planning agency said it’s looking to diversify China’s supply of iron ore.

Chinese firms should boost domestic exploration for the steel-making input, widen their sources of imports, and explore overseas ore resources, the National Development and Reform Commission said at its monthly briefing.

The NDRC also said Australia should stop damaging economic and trade cooperation with China and take measures to promote the healthy development of bilateral ties.

Iron ore is Australia’s biggest export earner and relations with Canberra have taken a turn for the worse in recent weeks. But adding the mineral to a raft of curbs already in place on Australian commodities would be a risky move given near record prices and China’s dependence on Australia’s high-quality supply.

“While an outright ban would be almost unimaginable, various forms of restrictions, delays or increased administrative burdens on Australian iron ore imports could yet happen,” Wood Mackenzie said in a recent note.

A suggested response to China’s trade restrictions has been to stop sending Australian iron to China. It’s really the one export Australia has that China needs – for all its economic and political strength, the Chinese state will not easily replace 60% of its iron ore supply.

China’s other major supplier is Brazil, which has been struggling with Covid-19 infections in its mining sector, as well as high-profile mining accidents that have undermined confidence in the industry in recent years. Theoretically, Australia could deal a severe blow to China by withholding the iron ore it craves, and perhaps accelerate a resolution to the tensions.