The year is coming to an end, Zhejiang, Hunan, Jiangxi and other local enterprises, factories received an emergency notice on “mandatory restrictions on electricity and factory shutdown”; at the same time, the largest domestic steel company Baosteel issued a notice, January 2021 product ex-factory price increases across the board.
Most of the country may not expect, these two seemingly unrelated events, actually are miles away from the kangaroo country triggered.
So far this year, relations between China and Australia have taken a sharp downturn after decades of good times. Relations between the two countries have fallen to a freezing point due to Australia’s passage of highly targeted foreign interference and investment laws, strong demands for investigations into the origin of the new crown, participation in the U.S.-Japan-India alliance in the South China Sea and even the sending of warships across the Taiwan Strait. Not long ago, a spokesman tweeted a scandalous photo of Australian troops in Afghanistan, showing a soldier holding a bloody knife to a child’s neck – but in fact the picture was photoshopped by a young domestic artist, “Wuhe Qilin”, after hearing about the Australian military scandal. The picture was actually photoshopped by a young domestic artist, “Uhe Kirin”, after hearing about the Australian military scandal. The incident added fuel to the fire, sparking outrage across the kangaroo nation, with Australian Prime Minister Morrison demanding a formal apology from the major powers and denouncing the perpetrators as “disgusting”. The war of words has not yet ceased.
China is Australia’s largest trading partner, and bilateral trade between China and Australia in 2019 was $158.97 billion, of which Australia had a huge surplus of $103.90 billion in exports to China. This includes iron ore, coal, wine and agricultural products in the bulk.
Since May this year, China began to impose 80.5% tariff on Australian barley, and the tariff on red wine is as high as 212%. Until November this year, it simply stopped importing lobster, wine, barley, sugar, timber, coal and copper ore, a total of seven types of Australian goods.
Australia’s annual trade surplus from China is about 50 billion U.S. dollars, so gradually heating up the trade friction, is not more damage to the kangaroo?
If you do the math, that’s not really true.
Two big items, iron ore and coal, accounted for 68.7 percent of Australia’s total exports to China in 2019. They are the real ballast of China-Australia trade.
Australia is the world’s largest exporter of coal, supplying 20% of the world’s power coal for power generation and 55% of the world’s metallurgical coal for smelting. The top three of last year’s total coal exports of about $50 billion were: Japan 27%, China 21% and India 16%. Leaving China, the price of Australian coal will certainly be affected, but it is not that no one will buy it.
Australian coal has the characteristics of low ash, low sulfur and high heat, which is 1.5 times more valuable than coal from other countries, so it is widely popular. China is currently the world’s largest coal importer, with 296 million tons of coal imports in 2019, including 77 million tons of Australian coal, accounting for 26%. If we leave Australian coal, not only is it difficult to find such a large amount of replacement from other countries’ markets, but because the quality is not as good as Australian coal, it is actually equal to reducing 1 ton of Australian coal, we have to increase 1.5 tons of imports, which is very uneconomical for both power generators and steel companies.
Moreover, although coal exports to the kangaroo earned a lot, but due to the high degree of mining mechanization, the industry driven by employment but only 46,000 people – to know that the number of Australian plumbers are as many as 80,000. In terms of political impact, it may not be as big as expected.
Coal doesn’t really have a stranglehold on the kangaroo throat, so what about iron ore? Even less so.
Australia is also the world’s largest exporter of iron ore. Sixty-seven percent of China’s total iron ore imports come from Australia, as much as 1.069 billion tons in 2019. Because of the high grade of Australian iron ore and its large production volume, it has become a must for domestic steel companies. Because if you don’t buy Australian iron ore, all the iron ore from other places in the world combined is not enough for China’s current production capacity.
Many people know that China’s iron ore reserves are also very rich, but 98.8% of domestic iron ore is poor, the average grade of only 35%, the cost of mining is three times that of Australia; while Australia’s iron ore is mostly open pit, and the grade is between 55% and 65%, compared to not only good quality and cheap, pollution is also much less. Steel companies themselves have very low profit margins and want to make money completely without Australian iron ore.
In a weak domestic economy needs to increase infrastructure to boost the economy, the demand for iron ore will not only not fall and will continue to rise, long-term supply and demand imbalance, resulting in this domestic steel companies in the iron ore pricing bottom, can not dominate the reason.
It is precisely to see this point, in response to China’s ban, Australia has significantly increased the price of iron ore as a means of counter-attack. The current iron ore I2101 futures contract near the delivery month, up to $ 160 per ton, compared to 511 yuan (RMB) per ton price level in April this year rose more than 1.1 times, and set a new price high in the past eight years. Domestic steel enterprises per ton of steel profits originally only more than 100, this price, steel companies not only can not earn, but also lose money. If Australia is a little more ruthless, the iron ore export tax rate by 1%, then domestic steel companies will have to shell out an additional $800 million …… has been unable to eat Chinese steel companies have recently asked for price intervention – but the problem is that the reason for the price increase is well known to everyone, others do not Cry foul, and you do not cry foul.
Australia in the barley, wine, lobster trade on the loss of that money, in the iron ore one can easily earn back, but also can earn more. For ordinary people, lobster would not have been able to afford to eat, red wine can not drink, but the price of coal and iron will be affected by the price of electricity, heating, infrastructure costs, really affect life.
Kangaroo lifting stones, may hit their own feet; but lifting coal and iron ore, that may hit others.
Since the signing of the China-Australia Free Trade Agreement in 2015, bilateral trade has soared year by year, and although Australia has a larger surplus, it is actually greatly beneficial to China. Settle their respective accounts clearly, instead of being impulsive to better handle the country’s strife. Kill the enemy eight hundred, self-loss ten thousand, this is the way children play house.
If you would rather pull the plug and limit electricity, steel companies go bankrupt to get a breath of air, then the breath, not only out of the end, will also be held into internal injuries.
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