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Iron ore exports unlikely to slow down amid Australia–China trade tension: experts

Two red shipping containers with the word 'Tariff' and Chinese flag
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The reliance of Australian exports to the Chinese market has been put under the spotlight, with China imposing fresh trade restrictions across industries such as coal, wine, barley and timber.

However, a number of resource industry experts believe the country will be unable to shake off its reliance on Australia’s iron ore industry, in the short-term at least.

Demand for iron ore remains strong

In a recent ABC article, iron ore research analyst Philip Kirchlechner said despite the hostility, China’s coronavirus stimulus packages have seen the country’s demand for iron ore surge as it targets steel-intensive projects like rail, airports bridges and ports. Given the fact that Australia is currently China’s most reliable source of steel, Kirchlechner believes there is no need to panic.

Former Australian ambassador to China Geoff Raby also commented on China’s need for steel (as quoted by the Australian Financial Review):

China’s big agenda is the Belt and Road. This is China’s grand plan to provide the hard and soft infrastructure to facilitate trade between Europe and Asia. Steel is central to it.

In the same AFR article, Sydney-based iron ore analyst Andrew Gadd also pointed to the fact the domestic iron ore industry in China is shrinking. China’s current supply of iron ore only meets 20% of that required by its steel plants. For this reason, Gadd does not predict any decline in Australian export volumes to China in the near future.

Reliability and quality

There were also signs last week that Brazilian miner Vale will take longer than expected to solve the challenges curbing its iron ore output, which means China will need to continue to look elsewhere to meet its demand.

As reported by the ABC, BIS Oxford Economics chief economist Sarah Hunter is optimistic there would be no significant disruptions to iron ore exports to China over the next few years:

…Australia is very well placed as a reliable, high quality, big supplier into the Chinese market, and Chinese demand for iron ore isn’t going to diminish, as they don’t really have a good viable alternative.

While their share prices are all down slightly today, ASX iron ore shares Fortescue Metals Group Limited (ASX: FMG), BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) all enjoyed solid gains over the past week as the iron ore price continues to surge.

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Motley Fool contributor MWUaus has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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