After helping to drive the iron ore price to record highs recently, it seems China might be planning to leave ASX iron ore producers in its dust by mining the mineral domestically.
An unnamed spokesperson from China’s National Development and Reform Commission (NDRC) said today that Australia has imposed “unreasonable restrictions” on trade between the two nations. They said:
The Australian Government has imposed unreasonable restrictions on China-Australia investment and trade cooperation and undermined collaborative projects, which has shattered mutual trust between the two countries and business confidence in a win-win cooperation. The Chinese authorities have no choice but to make a legitimate and necessary response.
With China’s demand for steel having pushed the iron ore price to a record high this month, there’s little doubt that China needs as much of the product as it can get.
So, can China sate its own demand for iron ore? And should holders of ASX iron ore shares be worried about China’s domestic production?
An unlikely threat?
According to the AFR, NDRC spokesperson Jin Xiandong replied to a question asking what China might do to guarantee its supply of iron ore by saying China will increase its domestic production.
While China already produces iron ore, it doesn’t produce as much as Australia.
The Australian Strategic Policy Institute (ASPI) states that China produces around 900 million tonnes of iron ore each year. It also imports around 1 billion tonnes.
Furthermore, China’s domestic iron ore production is reportedly expensive. The country’s iron ore reserves also house lower-quality ore, which requires heat-treating before being processed into steel.
This means it’s possible China won’t be able to rely purely on its own iron ore mines to satisfy the country’s demand.
In 2019, 81.7% of Australia’s exported iron ore went to China. That accounted for around 61% of China’s iron ore imports.
The AFR has previously reported that China makes around 55% of the world’s steel, while the ASPI reports Australia produces around 60% of the world’s iron ore.
Brazil is China’s second-largest source of imported iron ore, but the South American country is unlikely to be able to produce as much as Australia.
In fact, ABC News has reported that, together, ASX companies Rio Tinto Limited (ASX: RIO), BHP Group Ltd (ASX: BHP), and Fortescue Metals Group Limited (ASX: FMG) produce more than twice the amount of iron ore that Brazil’s (and the world’s) largest iron ore producer, Vale, does.
While it’s unlikely ASX iron ore producers will lose China as a customer anytime soon, it’s possible the increasing political tensions between the People’s Republic and Australia will be cause for concern among some ASX shareholders.