Australia has been shielded from an even worse Covid-19 economic downturn by a record demand for resources from China, despite the souring of diplomatic relations between Canberra and Beijing.
Keith Pitt, Australia’s minister for resources, told the Financial Times that the mining and energy sectors were underpinning the domestic economy, which has been battered by a second wave of Covid-19 that has forced many businesses in Melbourne to shut again for several weeks.
“Resources have been a shining light of Australia’s economic story. The sector has managed to keep pretty much all its people employed and engaged — and that’s over 240,000 direct jobs,” said Mr Pitt.
“And if you look at iron ore specifically, 62 per cent of China’s iron ore imports came from Australia in 2019-20.”
After Beijing imposed trade sanctions on some Australian farm products, Mr Pitt acknowledged that there were fears China would target the resources sector, too.
To help mitigate the fallout from sanctions, Canberra is expanding its trading partners to provide new markets for its resources. But Mr Pitt said China would probably continue to buy Australian resources owing to the high quality of products and reliability and efficiency of its industry.
Keith Pitt: ‘Resources have been a shining light of Australia’s economic story’ © AAP/PA Images
Data due to be released this week by Australia’s Department of Industry will show Australian mining and energy exports hit a record of almost A$300bn in the 12 months to the end of June.
Exports of iron ore alone will top A$100bn, as Australian producers BHP, Rio Tinto and Fortescue cash in on surging Chinese demand for the steelmaking ingredient and disruption to supply from Brazil caused by Covid-19.
Australia’s economy has been dragged into its first recession in almost 30 years by the pandemic and hopes of a “V-shaped” recovery are fading after the reimposition of social-distancing restrictions in Victoria.
On Thursday Canberra will release an economic update that is expected to forecast a budget deficit of A$191.5bn or about 10 per cent of gross domestic product — the worst since the second world war, according to a Bloomberg survey of economists.
“We’ve had over $600bn worth of investment in the last 10 years. That is significant investment in resources,” said Mr Pitt. “We think we’ve got the balance right. And there is no plans to change [mining taxes].”
Some analysts and industry figures have warned that China might seek alternative suppliers of iron ore, coal and LNG to reduce its reliance on Canberra. Beijing has slapped tariffs on Australian barley and sanctions on some beef products in the wake of Canberra’s call for an inquiry into the origins of Covid-19.
Tony Burgess, chairman of Flagstaff Partners and a former adviser to Rio Tinto as well as the government, told a conference this week that Beijing was considering multibillion-dollar investments in big iron ore projects in Africa. He urged Canberra to diversify the Australian economy away from a reliance on commodity exports.
Mr Pitt said Australia could withstand competition from other resource suppliers, including Africa. But he said Canberra was trying to find different trade partners, including joining the Trans-Pacific Partnership, and negotiating trade deals with the EU and UK.
China’s seemingly insatiable demand for iron ore was underlined Tuesday with BHP reporting shipments of the steelmaking ingredient by Australian producers hit a record 1,072m tonnes per year in June.
The resources company said Chinese steel production was running above normal seasonal levels, as the nation recovered from the Covid-19 fallout.