China-Australia Thaw Mood(?)... Iron Ore Yuan Spot Trading

BHP Group in Australia Establishes Separate Company in Shanghai for Iron Ore Exports
Signs of Improved China-Australia Relations Since Regime Change

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China has approved the import of Australian iron ore, which it had virtually banned. The condition is a spot transaction method where iron ore is exchanged for yuan at the port. Chinese media are emphasizing that this is the first yuan spot transaction.

Photo by Global Times Capture

Since Anthony Albanese, leader of the Australian Labor Party, became Prime Minister in May, China has hoped to improve relations with Australia. This transaction has raised expectations that trade between China and Australia will resume, albeit on a limited scale.

According to Chinese media such as Caixin and Shanghai Securities News on the 12th, iron ore shipped by BHP Group, Australia's largest mining company, arrived at Rizhao Port in Shandong Province on the 10th.

Chinese media are emphasizing that this transaction is the first yuan spot transaction. To facilitate the yuan spot transaction, BHP Group's subsidiary, BHP Billiton, established a separate company in Shanghai (BHP Billiton Mining Shanghai Co. Ltd). Through dollar transactions between the headquarters and the Shanghai subsidiary, minerals such as iron ore are first brought into China, then exchanged for yuan with Chinese steel companies at the port.

Since BHP, whose export routes for minerals such as iron ore and coal have been blocked, is bearing the foreign exchange risk, this transaction appears to be a desperate measure by BHP. China also interprets this yuan spot transaction as not a full yuan international transaction, suggesting that both sides have created a pretext to resume trade.

Jeremy Lui, Vice President of Marketing at BHP Billiton, said, "The sequence of first selling iron ore in dollars and then conducting spot transactions in yuan at the port is a way for both sides to coexist," adding, "Going forward, BHP Billiton will actively develop market solutions that can accommodate industry demands."

Photo by Global Times capture

Su Changyong, Deputy Secretary-General of the China Iron and Steel Association, said, "Building a diverse and stable supply chain of raw materials helps the high-quality development of China's steel industry," and added, "China will continue to strengthen cooperation with BHP Billiton."

Relations between China and Australia deteriorated in 2020. The Australian government, along with former U.S. President Donald Trump, pressured China by investigating the origin of COVID-19 (Wuhan). In response, China imposed economic retaliatory measures by levying tariffs of up to 218% on Australian agricultural products such as beef, barley, and wine, and virtually banned imports of Australia's key export items such as iron ore and coal.

Especially as Australia actively participated in U.S.-led China containment policies such as AUKUS (Australia, United Kingdom, United States security alliance) and the Quad (United States, Japan, Australia, India security dialogue), tensions between the two countries peaked.

The atmosphere changed in May when the center-left Labor Party led by Prime Minister Albanese became the ruling party, marking a regime change after about eight years. Last month, the Chinese and Australian defense ministers met for the first time in three years, and on the 8th, the foreign ministers of both countries held talks.

Earlier, Xiao Qian, Chinese Ambassador to Australia, visited Australia's three major mining companies?BHP Group, Rio Tinto, and Fortescue Metals Group?indirectly expressing a willingness to improve relations with Australia.

Chen Hong, professor at the Australia Research Center of East China Normal University, explained, "This yuan transaction will unleash great potential for mineral trade between China and Australia in the future," adding, "Considering the risk of high inflation in the U.S., it is reasonable for both sides to reduce dollar transactions in trade."

Meanwhile, some in China suggest that starting with Australian iron ore imports, China may approve imports of Australian coal in the same manner.

This content was produced with the assistance of AI translation services.