New bans and tariffs on Australian exports to China may be linked to a recent federal government decision amid continuing tensions between the two countries, and fears that our critical iron ore sector could be hit next time.
In a geopolitical risk analysis released Wednesday, AMP Capital chief economist Shane Oliver noted that tensions have been mounting since 2018, when the Asian superpower was barred from participating in Australia’s 5G rollout.
Relations have grown much strained last year after Australia joined calls for an independent investigation into the source of the coronavirus, prompting China to take punitive measures on exports including wine, barley, beef, lobster and coal.
Dr Oliver says tensions could rise again after the Morrison government last month canceled Victoria’s Belt and Road Initiative with China, warning that it could lead to further escalation of bans and tariffs.
“So far, they have not had a major macroeconomic impact because the value of the products affected is low (less than 1 percent of GDP) and the impact has been suppressed by rising exports and iron ore prices,” he said.
Australia accounts for half of the world’s iron ore exports, so Dr. Oliver says that foreign supplies of iron ore are not sufficient to allow China to move to other sources, but this could become “a bigger problem in the long term if tensions continue to worsen. … “.
“This may already be manifesting as a risk premium in Australian assets … any easing in tensions could lift the Australian dollar and Australian equities, but it could also go the other way if tensions escalate,” he said.
CommSec economist Ryan Felsman said the relationship was also likely to be further strained by Defense Secretary Peter Dutton this week that the federal government is considering whether to force the Chinese firm Landbridge Group to abandon its lease on the Port of Darwin. …
There are also serious concerns that a military conflict could erupt over some in China who threaten to reunite Taiwan by force.
Data released on Tuesday showed Australia’s exports to China jumped 16.8% to $ 13.4 billion last month amid record iron ore exports as China spent heavily on infrastructure construction as part of its COVID stimulus measures. -19, which led to a rise in prices. steel production to record levels.
“Of course, there has also been talk of China limiting some of its production, especially due to pollution, and I also heard that there may be some soft targeting of iron ore from Australia in the future due to trade tensions.” said Mr Felsman of the NCA. NewsWire.
“But we believe that as Brazil is clearly in the midst of a COVID crisis and Vale – one of the largest iron ore producers in the world – is clearly struggling to meet demand, we are seeing iron ore supply shortages globally.
“And Australia continues to be the world’s finest iron ore producer.”
Mr Felsman noted that the large Simandu project in Guinea will become a major new source of supply, but the quality of the ore will be lower.
Africa also poses an unattractive sovereign risk, he said.
“Australian demand for iron ore – for now – remains stable and strong,” said Mr Felsman.
He predicts prices will decline by the end of the year as China works to reduce pollution.