China and Australia to Renew Trading of Iron Ore, Coking Coal, Other Goods

It’s been 50 years since Australia first established diplomatic relations with China. But compared to the relative warmth of the early years, modern relations between the two nations are in a deep freeze. Of course, Australia calling for an international inquiry into the origins of the coronavirus outbreak didn’t help matters. In fact, it led to China imposing sanctions on Australian exports like coking coal and iron ore. That is, more or less, where things stand today.

However, in the past few days, things have begun to change. For starters, China’s Foreign Minister, Wang Yi, admitted to a visiting Australian delegation that China-Australia relations had encountered difficulties and setbacks. He even told the council, led by Foreign Minister Penny Wong, that this provided an opportunity to learn some valuable lessons. Indeed, the occasion marked the 50th anniversary of bilateral relations between the two nations. With so much positivity emerging from the meeting, many trade experts began speculating about a potential thaw in the relationship.

Wang told his Australian counterpart that their countries had no “fundamental conflicts of interest.” He also suggested they use the 50th anniversary to reorganize and restart. Experts now hope this could kick off a new era of trade, boosting iron ore and other mining sectors as well as new energy industries.

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Trade Optimism Extends Beyond Iron Ore Alone

Prior to the sanctions, Australia’s two-way trade with China carried a value of $280 billion. The bulk of the transactions consisted of iron ore, coking coal, and liquefied natural gas (LNG). In fact, more than 60% of China’s requirement of iron ore was Australian in origin. Even in 2021, when relations were at their worst, China customs figures still showed that the country had imported 694 million tons of iron ore from Australia. Ultimately, this figure accounted for about 62% of total imports.

As relations soured, both nations tried to find other markets for their imports and exports. Australia, for example, started looking at India and Japan to fill the gap left by dropping trade with China. In fact, between April and October this year, India’s import of Australian goods, including coal, aluminum, and copper, climbed to US $12.3 billion. This represents an increase of 48% from a year ago. India was also Australia’s second-largest export market for coal in 2020-21.

Zero-COVID China VS. Pre-COVID China

Today, COVID-hit China finds itself increasingly isolated, not only from the U.S., but most of the world. As a result, its policymakers have prudently decided to return to one of their oldest allies: Australia. The hope is that the country can reclaim supplies of vital elements like iron ore and coking coal.

A recent article in the South China Morning Post titled “Australia Owes its Economic Boom to China, and it Should Think Twice About Moving On” addressed the situation well. Among other things, it stated, “…(Australia) will quickly realize that no nation has the hunger or appetite for natural resources as China does. When the dust settles and Australia recovers from its self-inflicted wound, it will realize that China has the world to trade with, but Australia’s economic success was made in China.”

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Experts Remain Hopeful of Further Normalization

Ultimately, it is a bit early to determine whether a thaw in relations will actually set in. However, trade analysts, experts, and businessmen from both countries have gone on record describing their optimism.

In anticipation of the removal of the Chinese trade sanctions, Chinese coking coal futures dropped. Indeed, this was because traders felt the supply of raw steel making materials would soon increase. The Chinese also feel that a full trade recovery would mean the release of Australian coal, which would turn China’s current shortage into a surplus.

So, while China took the first step in normalizing trade between the two countries, much still depends on Australia. This is especially true in light of the latter’s growing strategic relations with the U.S. and other neighboring countries. For example, the fact that 21 out of 49 minerals listed in India’s critical minerals strategy are in Australia makes them an ideal export partner.

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