Beijing reported Monday that China’s GDP rose 2.3 percent last year, avoiding the recession that swept much of the world as the coronavirus pandemic spread. GDP in the fourth quarter increased by 6.5% compared to the previous year.
The Chinese were very helpful the government’s decision to invest heavily in infrastructure projects. Industrial production increased by 7.3% last month compared to a year earlier. And crude steel production reached a record 1.05 billion metric tons for that year, an increase of 5% compared to 2019.
The country cannot support this type of production without iron ore, which it needs to make steel for roads, bridges and buildings. China imported 17% more iron ore last year than in 2019.
Australia is a big winner of that growing demand, accounting for about 60% of China’s iron ore.
“China’s impressive industrial recovery has driven demand for steelmaking, and Australia is a major supplier of inputs for steelmaking in China,” said Sean Langcake, a senior economist at Oxford Economics.
China’s dependence on Australian raw materials contrasts sharply with trials that Beijing has made to put pressure on Canberra. After the Australian government requested a international investigation into the origins of the pandemic last year, China has maintained heavy tariffs or bans on imports of wine, beef, barley and apparently coal.
Meanwhile, the country’s dependence on iron ore in Australia remains strong. Huge miner Rio Tinto (RIO) reported on Tuesday that supplies of materials rose 2.4 percent in the last quarter, helped by “robust buying” in China.
“In China, the industrial sector has recovered and is now at pre-Covid levels due to the rapid deployment of incentives,” the company said in a statement.
Fortescue Metals Group (FSUGY), another major Australian iron ore miner, reported in October that China’s strong demand helped the company make record shipments for the material. He later reportedly signed transactions worth up to $ 4 billion with China’s major steel mills for iron ore exports.
Australia is not the only country to supply China with this vital raw material. But it is by far the biggest source and analysts say it would be difficult to replace if relations between the two countries worsen.
“If shipments of iron ore from Australia were restricted, China would be forced to pay a higher price for imports of iron ore from elsewhere,” Langcake said.
Brazil is an option – about 20% of the iron ore China uses comes from there. But analysts at Changjiang Futures, a Wuhan securities firm, point out that there are problems with this alternative. The main Brazilian mining company Valley (VALLEY)for example, it struggled with supply disruptions after a wave of coronavirus infections among its workers last year.
“There is still uncertainty about Brazil’s supply in 2021, as its pandemic has not yet been effectively controlled and Vale SA is less mechanized than its Australian rivals,” Changjiang Futures analysts wrote in a research note earlier this month.
The Chinese state media also admitted that the country is largely dependent on Australia for resources. International Business Daily – the official newspaper of the Ministry of Commerce of the country – suggested the same in an article published in November, which stressed that China needs to import the vast majority of the iron ore it needs to keep its economy buzzing.
“As the Chinese economy continues to recover from the pandemic … the country’s demand for iron ore will increase even more in the future,” the article said.
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