Australia finds new markets for coal and barley amid trade struggle with China

Australia finds new markets for coal and barley amid trade struggle with China

A bucket wheel reclaimer stands next to a pile of coal at the Newcastle Coal Port, in Newcastle, New South Wales, Australia, October 12, 2020.

David Gray | Bloomberg | Getty Images

China’s restrictions on Australian exports are not as damaging as initially thought, as Australia has found new markets for its products, analysts say.

Tensions between countries have soared in recent months and have deteriorated sharply after Australia backed a call for a global investigation into China’s handling of Covid-19.

Beijing has since taken several measures restricting Australian imports, ranging from collecting tariffs to imposing other bans and restrictions. Who has affected goods like barley, wine, beef, cotton and coal.

Collectively, the targeted exports were worth around $ 25 billion in 2019, or 1.3% of Australia’s gross domestic product, according to the Australia-based Lowy Institute.

With China being Australia’s largest trading partner, analysts expected Australia to be hit hard by the restrictions. Australia is one of the few developed countries in the world to have recorded a trade surplus with China.

But these analysts now say Australia has managed to contain the damage by diverting many of its exports to other countries.

Australian coal exporters appear to have successfully reoriented themselves to other markets.

Roland rajah

Chief Economist, Lowy Institute

“Exports to China have predictably collapsed in the areas affected by the sanctions, but most of this lost trade appears to have found other markets,” said Roland Rajah, chief economist at the Lowy Institute.

Overall, affected Australian exports to China – with the exception of coal – remained stable for most of 2020 at just over $ 9 billion, Rajah said. They eventually dropped to around half that amount as restrictions intensified in late 2020, he added.

As a result of the restrictions, these same products found other export markets and trade increased by about $ 4.2 billion in annualized terms for these products, offsetting most of China’s losses, according to Rajah. .

Growth sectors: coal, wood, seafood

Coal is one of the commodities that thrives despite China’s ban.

“Australian coal exporters appear to have successfully shifted to other markets,” Rajah said in a recent memo. “Exports to other markets initially increased, with China first reducing its overall coal imports from mid-year. The trend then accelerated, with China specifically targeting Australian coal from October 2020. ”

In January 2021, Australian coal exports to the rest of the world were $ 9.5 billion more in annualized terms than before the ban, he said.

Notably, Australian coal in India has gained market share, according to Rajah.

Marcel Thieliant, senior economist for Australia and New Zealand, agrees.

While Australian non-iron ore exports to China have fallen 40% over the past year, “coal miners have been able to divert their shipments to other countries,” he said. . “The result is that the conflict is not as damaging to the Australian economy as many believe.”

We are also always looking for other opportunities that we can exploit, whether through our existing business partners or by opening new avenues to explore.

Dan Teh

Australian Minister of Commerce

It’s not just coal. Other Australian exports affected by these restrictions are showing “even clearer signs of substantial trade diversion,” Rajah said.

He listed barley, cotton, seafood and timber that managed to find new markets.

“Sales of these products in other markets increased sharply, but only after China’s sanctions intensified in late 2020 – the drastic change signaling that this was indeed mainly the result of trade diversion.”

Sectors in difficulty: beef, wine

Analysts noted, however, that Australia was having difficulty shipping beef and wine.

“The Australian wine industry has struggled to make up for the loss of the high-end Chinese market,” noted Rajah. Earlier this year, China imposed anti-dumping duties on certain Australian wines, claiming Australia had dumped and subsidized its wine exports – and harmed China’s wine industry as a result.

Learn more about China from CNBC Pro

Beef was also affected when China suspended imports from some Australian beef suppliers.

But Rajah and Thieliant say the slowdown in exports may not just be due to trade tensions with China – it can also be largely attributed to supply issues after the recent drought.

“It is also striking that copper exports have not increased much even as the price of copper has risen by a third from pre-virus levels,” Thielant told CNBC. “It also suggests that Australia has had difficulty shipping copper elsewhere.”

But Australia is not left out. She is looking for new markets as strained relations with China show no signs of abating.

Its Deputy Prime Minister, Michael McCormack, told CNBC in May that the country is looking to diversify its markets.

As an example, he said that Australia had just sent its first shipment of barley to Mexico.

Beijing imposed anti-dumping and anti-subsidy duties on Australian barley last year – a move that effectively excluded the country’s barley producers from the Chinese market.

Australia’s trade minister last week said he would ask the World Trade Organization to establish a dispute settlement panel to address concerns over these restrictions placed on Australian barley by China.

Australian Trade Minister Dan Tehan told CNBC on Wednesday that his country also considers involving the WTO in the ongoing wine dispute with China.

Tehan echoed the message that Australia is looking for ways to find new markets for its products. He is currently negotiating a free trade agreement with the UK and the European Union.

“We are also always looking for other opportunities that we can exploit, whether through our existing business partners or by opening new avenues to explore,” he added.

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