Source:
https://scmp.com/comment/opinion/article/3161733/russia-eyeing-australias-place-chinas-top-iron-ore-supplier
Comment/ Opinion

Russia eyeing Australia’s place as China’s top iron ore supplier

  • China is searching for alternative sources to Australian iron ore, looking to India, Myanmar, Mongolia and Guinea, among others
  • Russia could be the answer given its proximity to China, its large iron ore reserves and the increasingly close political relations between the two
BHP Billiton’s Mount Newman iron ore mine in Western Australia. China faces a difficult task in its efforts to find sources of iron ore other than Australia amid rising geopolitical tensions. Photo: AFP

Beijing’s quest for diversification of its iron ore supplies raises hopes in Russia. Moscow sees it as an opportunity to boost bilateral trade and hedge its exports against new Western sanctions.

China’s demand for iron ore has steadily grown in recent years. Today, it buys about 70 per cent of all seaborne iron ore and is the world’s biggest consumer of the commodity. Most of its supplies come from abroad, predominantly from Brazil and Australia.

By various estimates, about 60 per cent of China’s iron ore is imported from Australia. Domestic production makes up less than 20 per cent of local needs.

Geopolitical tensions and trade wars with the United States have raised concerns in Beijing regarding its reliance on foreign supplies of iron ore, especially from countries such as Australia. China might bear the biggest brunt as more countries plan to shift away from globalisation.

Furthermore, there is the risk Beijing might find itself isolated from major markets amid disrupted supply chains and the growing prospect of confrontation with the West.

The threat of disruption to international shipping routes such as the Strait of Malacca in case of open conflict with the Western world elevate the importance of countries that are geographically close to China. Russia can be a reliable resource supplier thanks to their shared land border and resilient political ties.

Ties between China and Australia have been strained in recent years. Canberra has also emerged as part of the Aukus agreement with the US and Britain in what is seen by many as a strategic approach to counter China’s influence in the region.

Australia has long been China’s principal and most reliable iron ore supplier, thanks to its vast production and the proximity between the two nations. It also offers higher-quality ore and favourable transport costs. The times seem to be changing, though, and Beijing is looking for ways to reduce its dependence on Australian supplies.

For China, iron ore supplies are no longer a political or economic matter but one of national security. If Australia was to cut iron ore supplies off all of a sudden, the construction sector in China – its economic powerhouse – would struggle and potentially wreak havoc across the country’s economy.

In the draft five-year plan revealed earlier this year, China’s Ministry of Industry and Information Technology highlighted the importance of resource security as one of six top strategic priorities. It also accentuated the need to diversify production and supply chains of iron ore, urging greater levels of self-sufficiency by boosting domestic iron ore production.

Boosting domestic production would take time, though. Diversifying away from Australian imports might be painful for many producers in China and would also require a reliable substitute.

India’s iron ore exports to China grew by 90 per cent in 2020 from the previous year. China has also been expanding its ore supplies from Mongolia, Kazakhstan, Myanmar, several African countries and, most importantly, Russia.

Russian President Vladimir Putin attends a meeting with Chinese President Xi Jinping via teleconference call at the Novo-Ogaryovo state residence outside Moscow, Russia, on December 15. Moscow sees China as a reliable trading partner it understands well given the similarities in their political models. Photo: EPA-EFE / SPUTNIK / KREMLIN POOL
Russian President Vladimir Putin attends a meeting with Chinese President Xi Jinping via teleconference call at the Novo-Ogaryovo state residence outside Moscow, Russia, on December 15. Moscow sees China as a reliable trading partner it understands well given the similarities in their political models. Photo: EPA-EFE / SPUTNIK / KREMLIN POOL

Russia holds the world’s third-largest iron ore reserves, totalling 25 billion tonnes, and most of its deposits are scattered around Siberia and the Urals. Those reserves are relatively close to China.

The European Union is one of the biggest consumers of Russian iron ore. However, growing geopolitical tensions and threats of new sanctions are pushing the need for diversification and Russia’s eyes are increasingly looking towards China. Moscow sees China as a reliable trading partner it understands well given the similarities in their political models.

“We consider it strategically important for the Russian Federation to find a solution to the issue of logistics of the raw materials, which are the only mineral resources in which Russia is 100 per cent in the first place in reserves [in the world]. This is iron ore,” Alisher Usmanov, the main shareholder of the Metalloinvest company, said in a recent interview with Rossiya 24.

Metalloinvest has the world’s largest proven reserves of iron ore – 15.4 billion tonnes, according to the international JORC classification – which guarantees about 150 years of production. By highlighting the need for more significant exports to China, Usmanov echoes the consensus among Russian political elites to enhance bilateral trade with China as a matter of economic stability and national security.

The Russian leadership in the upcoming year is likely to undertake more efforts to boost its iron ore supplies to China. Russian iron ore exports to China via the Trans-Baikal railway grew 62 per cent to 1.7 million tonnes in 2019. In 2020, China imported US$1.36 billion worth of Russian iron ores and concentrates.

The numbers are expected to grow further and accelerate. Russia is expanding and improving its transport infrastructure as it increasingly eyes China’s market as a natural hedge against the West.

Dmitriy Frolovskiy is a political analyst and independent journalist

David Dodwell is away