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“It makes more sense for Australia to sell iron ore to China and import steel from China” Do you agree with this statement? Justify your answer.
Australia’s Rio Tinto is one of the most profitable iron ore producers. They have been make huge money by selling iron ore despite the plunging prices of iron ore. The rivals of Rio Tinto have been struggling to make money. Australia exports iron ore to China. China is one of the major export nations for Australia. There has rapid improvement in the sophistication and quality of the Chinese investors and the Chinese parties are familiar with the Australian processes. The fortunes of Australia n iron ore industry are linked with the appetite of China for the export of iron ore. Western Australia has enjoyed boom for a decade selling iron ore which is the major component of steel to China. The large iron ore miners in Australia, for e.g. Rio Tinto, BHP Billiton and Fortescue Metals Group have made expenditures worth billions of dollars in building the railways, mines and ports (Smyth, 2015). They have doubled the production of iron ore to around 717 million tonnes in the past five years. China has been the biggest export nation. But in the recent times there has been rapid decline in the prices of iron ore. The growth of the Chinese economy has slowed down with the decline in the demand for iron ore. Australia is one of the biggest beneficiary of the boom of China. The supply of iron ore to China will surge with faltering demand.
Australia imports Steel from China. The steel industry in Australia is affected by the imports from China. The local steel fabrication industry is adversely affected by the steel companies in China. It has become difficult for Australian steel companies to compete with the shortened import duties from China. The massive steel making industry of China is flooding the entire world with its exports (the Guardian, 2015). The steel producers across the world are spurred with the volume of export of steel by China. The steel producers across the world are seeking for protection from the Government regarding the fall in the prices of steel. India, Korea and European Union are affected by the excess supply of steel by China. The patterns of trade of these countries are affected. The export of steel from China has risen by 63 % in the first half of 2015. The production of steel in China is four times than the production of steel in USA (Miller & Mukherji, 2015). However with the slowdown in the economic growth of China, there has been decline in the usage of steel in China. But the low output is supported by the fall in the price of iron ore which is one of the major components of steel. The growth of China has been a consumption driven growth maintaining a balance across the various sectors of the economy.
The major exports of Australia to China are iron ore and coal (Rba.gov.au, 2015). The majority of the exports by Australia are absorbed by the manufacturing sector in China. The major composition of the growth of China has major implications of the economic link between Australia and China. Thus it makes more sense for Australia to sell iron ore to China and import steel from China.
Miller, J., & Mukherji, B. (2015). Why Chinese Steel Exports Are Stirring Protests. WSJ. Retrieved 12 August 2015, from http://www.wsj.com/articles/why-chinese-steel-exports-are-stirring-protests-1426466068
Rba.gov.au,. (2015). RBA: Bulletin December Quarter 2014-Chinese Rebalancing and Australian Exports. Retrieved 12 August 2015, from http://www.rba.gov.au/publications/bulletin/2014/dec/4.html
Smyth, J. (2015). China slowdown sparks friction in Australia. CNBC. Retrieved 12 August 2015, from http://www.cnbc.com/2015/04/16/australia-steeled-for-china-slowdown-as-iron-ore-prices-fall.html
the Guardian,. (2015). Steel 'cheaper per tonne than cabbage' in China as iron ore hits six-year low. Retrieved 12 August 2015, from http://www.theguardian.com/business/2015/jul/09/steel-cheaper-per-tonne-than-cabbage-in-china-as-iron-ore-hits-six-year-low
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