China-Australia relations: iron ore prices hit record as market mulls Beijing’s next move

A fundamental demand for steel in China, coupled with worsening bilateral tensions, has pushed the price of iron ore beyond US$200 a tonne for the first time in 14 years

It remains to be seen whether there will be commercial moves to counter political risks in the near term, such as upswings in iron ore shipments from Australia

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Iron ore prices surpassed US$200 a tonne this week, setting an all-time high. Photo: Reuters

Published: 11:30am, 8 May 2021Updated: 11:30am, 8 May 2021

Some iron ore traders view the indefinite suspension of the China-Australia Strategic Economic Dialogue as a potential threat to the iron ore trade between the two countries, after bidding up iron ore prices to an eye-watering high of more than US$200 a tonne this week.

On Thursday, Beijing halted the high-level economic dialogue with Canberra – a move seen by many as political retaliation for Canberra’s axing of Victoria state’s non-binding belt and road pact with China last month. That same day, iron ore reached US$202 a tonne.

While prices of both iron ore and its end product, steel, had been rising before the past week’s Chinese Labour Day holiday, iron ore prices and iron ore futures contracts at the Dalian Commodities Exchange are now rallying sharply on the speculative premise that the price of iron ore imported into China would soar if the Beijing were to cut back or cut off Australian supplies.

The new record surpassed the previous US$200 high from 2007, and on Friday prices closed at just over US$212 a tonne for 62 per cent grade iron ore, according to according to pricing and research group Fastmarkets.

However, some analysts considered this a knee-jerk reaction, as they do not foresee either government severing the highly codependent trade.

“As we’ve seen on many occasions recently, Dalian Commodity Exchange retail investors are misinterpreting, misdiagnosing and jumping to conclusions based on a political event,” Navigate Commodities managing director Atilla Widnell said.