Australian iron ore majors hit as China changes import rules
The changes from China come as the iron ore price surges, with Brazil’s Vale facing further production disruptions.
Shares in Australian iron ore majors have taken a hit on Thursday on the back of a change to China’s import regime that was cast as a threat to Australian producers by state-owned media sources amid rising trade tensions.
Shares in Fortescue Metals Group, BHP and Rio Tinto took a hit after Chinese English language media outlet The Global Times reported on a shift in the inspection regime for iron ore imports - to remove mandatory inspections of inbound cargoes in favour of testing and sampling on the request of an importer.
The Global Times quoted a Chinese academic, Yu Lei, a chief research fellow at the Research Centre for Pacific Island Countries at Liaocheng University, suggesting the shift was a threat to Australian iron ore exporters.
"This is another implicit warning to Australia," he is quoted as saying.
"It is associated with how Australia has acted, and a general decline in demand for steel on the global level.”
The media outlet, often seen as a proxy for the views of the Chinese government, explicitly linked the rules changes to trade tensions between Australia and China, which recently slapped tariffs on Australian barley exports amid a diplomatic dispute over China’s role in the coronavirus pandemic.
The new customs rules will apply to all iron ore cargoes, not just those from Australia, and the rules change published by China’s General Administration of Customs on Thursday said it is designed to promote deregulation and promote trade.
It comes as the iron ore price is again surging, as Brazilian major Vale faces the prospects of further production disruptions due to the rampant spread of COVID-19 through the South American nation.
Morgans analysts said on Thursday the iron ore price could again test $US120 a tonne on the back of Vale’s problems, suggesting China might have trouble finding reliable sources of ore outside of Australia, given Chinese stimulus measures are likely to be introduced later this week.
While China has previously been accused of using its customs inspection regime as a way to punish Australian coal exporters by stalling individual shipments, iron ore industry sources played down the Global Times report on Thursday, saying a first look at the new rules suggested that on first review it appears to be a relaxation of the existing regime.
Trade Minister Simon Birmingham joined Australia’s mining industry in welcoming moves by China to streamline its customs clearance of iron ore imports, describing it as a “positive example of the further opening of Chinese markets”.
Following recent clashes with the Communist nation over barley and beef imports, Senator Birmingham said Australia remained “committed” to a “mutually beneficial trade” relationship with China.
“We welcome any improvements in administrative arrangements that could streamline the customs clearance of iron ore imports,” Senator Birmingham said.
Consulting with exporters
It is understood Chinese authorities have been consulting with exporters, including Australian iron ore majors, on the proposed changes since October last year and the current rules changes have been well flagged with the industry.
A spokesman for BHP said on Thursday the iron ore major supports the changes, saying they would speed up the process for both exporters and BHP’s customers.
“We’re supportive of the changes to the iron ore inspection process and believe it will create a more efficient supply chain for producers like us as well as our Chinese customers,” he said.
“China customs has been keeping us informed of their intention to change some of the iron ore inspection process for quite some time.”
Fortescue chief executive Elizabeth Gaines also welcomed the changes, saying the company remained a core supplier of iron ore to China.
“This is part of a broader suite of efficiency reform measures under development by the Chinese government since 2015,” she said.
“We are committed to meeting the needs of our customers and follow strict, independent quality control processes to ensure the reliability and consistency of our delivered products. The Chinese steel industry produced 234.5 million tonnes of crude steel in the March quarter, an increase of 1.2 per cent compared to the prior corresponding quarter, supporting strong ongoing demand for iron ore.”
Fortescue shares closed down 2.2 per cent to $13.60, with BHP finishing Thursday’s ASX session off 0.6 per cent at $34.51 and Rio Tinto lost 1 per cent to $93.19.
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