China, Australia’s biggest trading partner, has appeared increasingly willing to use its market clout to exert pressure on its suppliers of key commodities. In 2020, Beijing slapped an unofficial ban on Australian coal amid a diplomatic stoush with then prime minister Scott Morrison, leaving dozens of coal ships stranded at sea for months, unable to dock at Chinese ports.
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However, if this week’s reported ban on BHP’s iron ore turned out to be true, it would mark an “unprecedented escalation”, Prendergast added.
“Historically, punitive trade measures have only been levelled against marginal producers … not majors,” he said. It was possible that the state-owned buyer, China Mineral Resources Group (CMRG), felt more confident to push BHP harder due to a combination of strong global iron ore supplies and the looming start of the China-backed Simandou iron ore project in Guinea, he said.
CMRG was set up in 2022 in a push by Beijing to consolidate the bargaining power of Chinese steel mills in contract negotiations with global iron ore suppliers, including Australia’s BHP, Rio Tinto and Fortescue Metals Group.
BHP chief executive Mike Henry met with Treasurer Jim Chalmers on Wednesday to brief him on the situation following a report about the Chinese ban in Bloomberg News. Henry is said to have stressed that BHP viewed the situation as a commercial matter rather than a diplomatic one.
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BHP has not commented publicly on the issue, saying it does not discuss commercial matters.
Prime Minister Anthony Albanese on Wednesday highlighted that both China and Australia benefited from the iron ore trade, adding that he wanted to see the matter resolved quickly.
“I am concerned about that and what we want to make sure is that markets operate properly,” Albanese said.
“We have seen those issues in the past. I want to see Australian iron ore to be able to be exported to China without hindrance.”
Australia’s two biggest miners, BHP and Rio Tinto, still earn most of their money digging up iron ore from the Pilbara and shipping it to China to be processed into steel.
However, both mining giants have been pushing to boost their exposure to what the industry calls “future-facing” commodities, particularly copper, which the world needs much more of as a critical building block for renewable energy, transmission lines and electric cars.
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