Beijing reported Monday that China’s GDP rose by 2.3% last year, averting the recession that gripped much of the world as the coronavirus pandemic spread. GDP grew by 6.5% in the fourth quarter, compared to a year earlier.
The Chinese were of great helpgovernment decision to invest heavily in infrastructure projects. Industrial production rose 7.3% last month compared to a year earlier. And crude steel production hit a record high of 1.05 billion tons for the year, an increase of 5% from 2019.
The country cannot sustain that kind of output without iron ore, which it needs to make the 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 and is responsible for about 60% of the iron ore that China imports.
“China’s impressive industrial recovery has fueled demand for steel production, and Australia is a major supplier of steel-making assets to China,” said Sean Langcake, senior economist at Oxford Economics.
China’s dependence on raw materials from Australia is in stark contrast to theattempts that Beijing hasmade to put pressure on Canberra. After the Australian government called for aInternational inquiries into the origins of the pandemic last year, China hit heavy tariffs or bans on imports of wine, beef, barley and apparently coal.
The country’s dependence on iron ore from Australia, meanwhile, remains strong. Mining giant Rio Tinto(RIO) reported Tuesday that shipments of the material were up 2.4% over the quarter, aided by “robust purchases” from China.
“In China, the industrial sector has recovered and is now at pre-Covid levels thanks to the rapid deployment of stimulus measures,” the company said in a statement.
Fortescue Metals Group(FSUGY), another major Australian iron ore miner, reported in October that demand for China is stronghelped the company achieve record shipments for the material. It later reported that it had struck as much as $ 4 billion in deals with major Chinese steel mills for iron ore exports.
Australia is not the only country to provide China with this vital resource. But it is by far the largest source, and one analyst says it would be difficult to replace if relations between the two countries soured even further.
“Restricting shipments of iron ore from Australia would force China to pay a higher price for iron ore imports from elsewhere,” said Langcake.
Brazil is an option – about 20% of the iron ore that China uses comes from there. But analysts from Changjiang Futures, a Wuhan-based securities company, point out that there are problems with that alternative. Large Brazilian mining company Valley(VALLEY)For example, it struggled with supply disruptions after a wave of coronavirus infections among its employees last year.
“There is still uncertainty about Brazil’s supply in 2021 as the pandemic is still not effectively under control and Vale SA is less mechanized than its Australian rivals,” Changjiang Futures analysts wrote in a research note earlier this month.
Chinese state media have also admitted that the country relies heavily on Australia for the resource. The International Business Daily – the official newspaper of the country’s Ministry of Commerce –suggested this in an article published in November, which noted that China needs to import the vast majority of the iron ore it needs to keep its economy going.
“As the Chinese economy continues to recover from the pandemic … the country’s demand for iron ore will increase further in the future,” the article said.
