A recent report by Bloomberg shows that China has instructed its traders to stop purchasing more than seven different Australian commodities including lobster and wine, timber, sugar, copper ore and concentrate, barley and coal.
Canberra and Beijing have been in a geopolitical dispute since April after Australia demanded an international inquiry be made into the origins of the coronavirus pandemic. The “South China Morning Post” aired reports suggesting that sugar and copper exports into China from Australia will be stopped. This is after the country banned a shipment of barley from an Australian grain exporter and timber imports from Queensland.
In addition, recent rock lobster shipments from Australia were also delayed in Shanghai. China is Australia’s largest as well as its most vital trading partner. China purchases almost 39% of merchandise exports from Australia, and trade between the two countries is estimated to be worth about $171 billion.
Richard McGregor, a senior fellow at the Lowy Institute, revealed to Bloomberg that China seemed determined to punish Australia while also letting the situation be an example to other countries. He added that China wanted to show that there is a cost for political disagreements.
Australia is the top supplier of coking coal and iron ore in China, the main ingredients used to manufacture steel. The country is also the major provider of thermal coal and LNG, used mainly in power stations. BHP, a mining firm based in Australia, confirmed that it had received deferment requests from its Chinese coal consumers.
Last year, coal made up almost 9% of Australia’s total earnings from its exports to China, which is small in comparison with iron ore exports and natural gas. The biggest export to China from Australia is iron ore. People close to the situation say that the commodity will not be included in the cease and delay situation. Last month, Australia exported almost 78 million tons of iron ore, and China purchases more than 80% of Australia’s production of metallurgical coal.
In the copper market, almost 55% of copper mined in Australia for export was imported by China last year. However, Australia barely covered 5% of China’s copper requirement, which means it won’t be hard for its smelters to find alternatives.
Furthermore, information released from Sandfire, an Australian copper miner, earlier this week indicated that the reports were only media speculation and added that its Monty and DeGrussa mines, which are high-grade copper mines in the Asia-Pacific region, were still in operation at full production rates into the last quarter of this year and that its production guidance for FY 2021 was maintained.
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