Chinese Real Estate Evergrande Collapse Exposes Australian Iron Producers

The Australian Strategic Policy Institute (ASPI) urged the federal government to bring China out-arbiter in the global trade to reduce iron exports’ chances of being used as a weapon in the growing diplomatic stalemate between the two Nations. Australian iron ore producers risk being used as a pawn in Beijing’s geopolitical game against Canberra, Aspi warned, amid concerns that Chinese demand for the precious commodity could dry up if the colossal Evergrande real estate group collapses.

China has already banned Australia’s exports of coal, wine, and barley as part of a controversy over alleged state-sponsored cyberattacks and the creeping influence of Chinese firms like tech titan Huawei. However, as the iron metal prices are falling by more than 50 percent since May, the ASPI paper warns that producers are exposed. “Should an excess of iron ore emerge in the next few years, Australian miners could be subjected to the same kind of discriminatory action that China has taken against Australian coal,” economic experts say.

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Australia could seek a ruling from the World Trade Organization that China’s treatment of its coal exports was unfair, setting a precedent it could then use to make the same treatment of coal ore exports more difficult. Iron ore is critical to the Australian economy, even more so after the pandemic created a hole in the value of the country’s growing services exports. Last year, miners raised $ 150 billion from exports, about 80 percent of which from China. A reduction of one dollar in the iron price is estimated to reduce the Commonwealth’s coffers by $ 130 million; the drop from the mid-year price of $ 214 a ton to less than $ 100 now costs billions of dollars in tax revenue.

The real estate company in China’s second-largest, but years of borrowing have left it with $ 300 billion in debt. They cannot sell the assets quickly enough to pay off all his debts, and his shares have lost 85% of their value this year. The prospect of defaults and a domino collapse in the Chinese real estate market is growing. The real-estate market makes up at least 16% of the Chinese economy. That means such an important player’s collapse could have a disastrous impact.

Australian Prime Minister Scott Morrison expressed concern that the company’s collapse could trigger a global financial disaster. But the new report notes far-reaching consequences for China’s housing market, which is the largest user of iron minerals. “Evergrande’s financial implosion bears similarities to the US subprime crisis with the build-up of bad debt related to property and losses that have the potential to trigger a loss of confidence in the financial system,” he states. Global financial markets woke up to the threat, causing a significant swing this week as analysts slashed their forecasts for iron ore production due to the words of investment bank UBS experts, to mounting headwinds demand raw materials.