How the ChAFTA could boost Australian mining activity

February 2, 2017

 

Relationships between countries have a significant affect on trade flows and, consequently, the shipping activity that allows businesses and industries to thrive. In some cases, international relationships ratified through trade agreements have noticeable effects on particular industries as well, boosting the supporting services that are essential to success.

One of the most significant agreements in recent years is the China Australia Free Trade Agreement (ChAFTA), one that could greatly benefit Australia’s mining industry as it opens it up to new markets. For organisations that are shipping mining equipment overseas to cope with demand, it’s essential they stay up to date not just with the industry’s hot spots, but how they’ll evolve over time as well.

What’s the premise of the agreement?

Signed in 2015, the ChAFTA brings extra certainty to what was already a strong trading relationship between the two countries. On top of this, it also guarantees continued cooperation for the future. For industries such as mining that have suffered from economic challenges in recent years, a written agreement based on international demand for these products is essential for building confidence.

Importantly, China is already Australia’s largest trade partner, so the relationship between the two countries has been cemented through years of trade and investment. An infographic produced by the Department of Foreign Affairs and Trade noted that total trade between the two nations stood at $160 billion before the agreement.

According to Trade Minister Andrew Robb, the agreement is intended to benefit both businesses and consumers through the two-way investment relationship it establishes.

“The Agreement secures better market access for Australia to the world’s second largest economy, improves our competitive position in a rapidly growing market, promotes increased two-way investment and reduces import costs,” he explains.

The agreement greatly reduces import tariffs for Australia’s mining products. Nearly all of Australia’s mining exports to China had tariffs removed immediately, including those on aluminium oxide and coking coal. One exception is thermal coal, a product that China is attempting to reduce its reliance on, which will have its tariffs removed slowly over time.

Why is it significant for mining exports?

The Minerals Council of Australia (MCA) presented a report which revealed the impact it expects ChAFTA to have. China is responsible for one-fifth of international coal imports, making it the largest in the world. For a country like Australia where mining has been through a downturn, a relationship with a country with such high demand like China is invaluable.

China is dominating global imports for commodities such as manganese, aluminium and iron ore.

Coal isn’t the only mineral product that China is dominating global demand for. The same report found that, since 2000, China has grown to dominate world imports for a range of different commodities, including manganese, aluminium and iron ore, all of which it consumes at a much higher rate compared to its coal use.

While it can supply some of these commodities for itself, the MCA found that the future isn’t completely stable for some of these industries within China. The report notes that many of China’s coal mines and steel producers are struggling financially, conditions which could increase its reliance on imports from its trading partners.

China continues to invest in Australian businesses

Behind the USA, Australia is the second-largest recipient of Chinese investment with US$78 billion spent in the country between 2005 and 2015, according to KPMG. The organisation also found that while Chinese investment as a whole is growing, its Australian investment in particular is rising at twice the international rate.

KPMG reported that the biggest targets for Chinese investment include real estate, renewable energy and healthcare, but energy, mining and infrastructure are still a small focus of this expenditure.

Even without direct investment into the resources industry, the export opportunities offered by ChAFTA could be enough to bring confidence back into Australia’s resources sector and provide the foundation for a strong future.

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