Beijing reported Monday that China’s GDP grew 2.3% last year, halting the recession that gripped much of the world as the pandemic spread of the coronavirus. GDP in the fourth quarter grew 6.5%, compared to a year earlier.
There was a lot of help in China the government’s decision to invest heavily in infrastructure projects. Business output rose 7.3% last month, compared to a year earlier. And crude steel production hit a record high of 1.05 billion metric tons for the year, a 5% increase from 2019.
The country cannot sustain that kind 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 it did in 2019.
Australia is a major winner of that growing demand, accounting for about 60% of China’s iron ore imports.
“China’s impressive industrial recovery has driven demand for steel production, and Australia is a major supplier of steel imports to China,” said Sean Langcake, senior economist at Oxford Economics.
China’s reliance on Australian raw materials is very different from that efforts on Beijing made to put pressure on Canberra. After the Australian government called for international research into the origin of the pandemic last year, China apparently imposed tariffs or a severe ban on imports of wine, beef, barley and coal.
At the same time, the country’s dependence on iron ore from Australia remains strong. Mining giant Rio Tinto (RIO) Shipments of the product rose 2.4% in the last quarter on Tuesday, helped by “strong purchases” from China.
“In China, the industry sector has recovered and is now at pre-Covid levels due to rapid deployment of incentives,” the company said in a statement.
Group of Fortescue metals (FSUGY), another major Australian iron ore miner, reported in October that demand is strong in China the company helped reach higher loads for the product. They later announced that it had signed contracts worth as much as $ 4 billion with major Chinese steel mills for iron ore exports.
Australia is not the only country that supplies this vital raw material in China. But this is by far the largest source, and one analyst says it would be difficult to replace it if the relationship between the two countries went even further.
“If the transport of iron ore from Australia were banned, China would have to pay a higher price for iron ore imports from elsewhere,” Langcake said.
Brazil is one option – about 20% of the iron ore that China uses comes from there. But analysts at Changjiang Futures, a Wuhan-based securities firm, point out that there are problems with that option. Brazil’s leading mining company Vale (VALUE), for example, has struggled with supply disruptions following a wave of coronavirus infections among its staff last year.
“There is still uncertainty about Brazil’s supply in 2021, as its pandemic has not been effectively controlled and Vale SA is less mechanized than its Australian competitors,” Changjiang analysts wrote. Futures in a research note earlier this month.
Chinese state media outlets have also acknowledged that the country relies heavily on Australia for the facility. The International Business Daily – the official newspaper of the country’s Ministry of Commerce – highly recommended in an article published in November, which showed that China needs to import most of the iron ore it needs to keep the economy afloat.
“As China’s economy continues to recover from the pandemic … the country’s demand for iron ore will increase further in the future,” the article said.
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