OPINION: Both China and Australia have to think about their mutual dependence on iron ore.
The signs keep coming that Australia can no longer rely on China to be its permanent ticket out of trouble. Beijing is adding more investors to develop Guinea’s Simandou project, the world’s largest untapped iron ore resource. Satellite pictures show the progress on the complex mine, railway, and port development which plans to start shipping ore to China by 2025.
It’s hard for China to get around that arithmetic, and is trying to hedge where it can. China does have the advantage of being the iron ore end-user, willing to tolerate much higher risks to open up a new mineral basin like Simandou to supply its other industries. It does not have to make its projects stack up in global markets the way a pure miner would. And when big countries think their geopolitical interests and vulnerabilities are at stake, they will move jungles or deserts if they have to.
Australia needs to be careful of its interests here. It has a 60 per cent share of what may be a tightening Chinese iron ore market., but urbanisation is slowing overall population growth too. Peak steel has been called prematurely before, but the limits must be approaching. Australia won’t have a China card forever. It must sharpen its own incentives in other sectors of the economy, which means taking up the reform agenda it has ignored for two decades.
It’s also clear that an era of government intervention in global resources is just beginning. A carbon tax is a non-starter in the US, so the Biden administration has created a borrowed $400 billion green industry subsidy. That may ignite demand for Australia’s future green minerals. But it may crowd out countries’ efforts, and threatens a subsidy war with Europe.
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