China warns of economic ‘winter’ for Australia as it reveals a new plan to ditch our iron ore

China has revealed a new plan that could send Australia into a “wintry period” by wiping more than $81 billion from our economy.

China has revealed plans that could send Australia into a “wintry period” by wiping more than $81 billion from our economy.

After spectacularly failing to push the price of Australia’s most lucrative export down amid trade tensions, the Chinese Communist Party (CCP) now believes it can wean itself off Australia’s resources by rapidly expanding its scrap steel recycling industry.

It reckons that by using the latest technology, it can cut our iron ore exports to them in half in the next ten years.

Details of the plan were published today in the CCP’s mouthpiece newspaper The Global Times, which spoke to a top executive of a German scrap steel recycling company to back up its claims.

Rafael Suchan, the CEO of Scholz Recycling Group, was in China this week for a trade show where he allegedly told a Times reporter Beijing could soon massively scale back its iron ore exports, while continuing its record-level steel production.

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China still plans to pump out steel at record levels. Picture: Kevin Lee/Bloomberg News

China is hoping to use more recycled steel. Pictured is President Xi Jinping speaking at a ceremony. Picture: Kevin Frayer/Getty Images

He said that of the one billion tonnes of crude steel now being produced in China, about 22 per cent is based on recycled scrap steel.

Under China’s Five-year Plan, that ratio is projected to be increase to 30 per cent by 2025.

Mr Suchan said that means that 330 million tonnes of recycled scrap steel will be used to produce steel, an increase of 50 per cent from the current level.

The Times said the recycling industry for scrap steel in China will “double in the next 10 years”.

“For every tonne of steel that is based on scrap steel, you save 1.6 tonnes of iron ore,” Mr Suchan told the newspaper.

“By 2025, if China’s plan to make steel from scrap goes as planned, the country will save 480 million tonnes of iron ore imports each year. By 2030, imports will decrease by 660 million tonnes annually.”

Last year’s figures show Australia exported 600 million tonnes of iron ore in 2020 and the current price is just over US$210 a tonne.

In very rough terms, and based on current figures, that means if China successfully manages to cut its iron ore imports in half, Australia will take a hit of at least $81 billion.

As part of its plans cut its reliance on Australia, Beijing is also looking to exploit untapped mines in Africa.

Chen Hong, a professor and director of the Australian Studies Center at the East China Normal University, told the Times that if these plans pay off Australian iron ore could even be cut by more than half.

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China has plans to slash iron ore imports in the next four years. Picture: Fred Dufour/AFP

‘Wintry period’ for Australia

Mr Chen issued a direct message to Scott Morrison via the Times telling him to “stop deluding people in Australia by creating an illusion that bilateral trade is not being hit by the fraught relations”.

“When China cuts imports of Australian iron ore, the Australian economy could enter a ‘wintry period’,” he said.

He said Beijing does not want to break ties with Australia but that Canberra’s “discriminatory policies against China and Chinese businesses, and some Australian politicians’ and media outlets’ outright threats to cut or stop iron ore exports to China” have left it with no choice but to take action.

However, China’s plans to turn its back on Australian iron ore have been met with scepticism by experts here who say there is simply no way China can make up the numbers by finding it elsewhere.

Michael Shoebridge, the Director of Defence, Strategy and National Security at the Australian Strategic Policy Institute, said the iron ore situation has exposed a “frustrating reality for Beijing”.

“The Chinese state clearly wants to reduce its dependence on Australian iron ore,” he told news.com.au. “But Chinese demand for iron ore for steel production to power domestic construction and its manufacturing export engine makes it very unlikely that the Chinese economy can operate without it.”

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Some experts say China won’t be able to cut off Australian iron ore. Picture: Reuters

He said that, as part of Beijing’s plans to diversify, it was looking to exploit untapped deposits in Africa.

However, he said the sheer scale of Chinese demand is likely to ensure Australian exporters retain a sizeable share of the China market for some years, despite everything the CCP is doing.

“The reliability and scale of other producers has not been able to match Australian suppliers, and much of this is unlikely to change fast,” he said.

For example, the sovereign risk – the potential that a nation’s government will default on its sovereign debt – in a number of African states China is looking at remains a big problem for Beijing.

Mr Shoebridge said the extraordinarily low cost structures, high technology mining techniques and high quality ore in Australia mean China will have no choice but to keep buying from us.

Even when the price of iron ore drops, which it inevitably will at some point, Mr Shoebridge said the cost structures of the Australian companies mean that they will still be profitable at much lower prices.

News.com.au has contacted Germany’s Scholz Recycling Group for comment on its claims in the Global Times.