China has long been the destination of choice for a range of Australian mineral exports, most notably coal and iron ore, but this relationship has been challenged in recent years. With tensions frayed by Australia calling for an inquiry into China as a potential source of the Covid-19 virus, and Australia eager to add balance to its exports, Australian mines are having to find new buyers for their products.
This is not to say that Australia has cut China off from its minerals entirely. In 2021, Australia exported 705 million tonnes of iron ore alone to China, orders of magnitude more than any other country.
However, this total was lower than the 735 million tonnes shipped in 2020. Between these two years, Australian iron ore sales to Japan, South Korea, Taiwan, Vietnam, and Indonesia all increased, suggesting that, however slowly, Australia is beginning to shift its mineral exports away from China.
This trend is even more apparent in coal. Figures from the Australian National University estimate that, by 2025, Chinese coal imports will fall by 26%-45%, with Australian thermal coal imports expected to fall to as low as 30 megatons by 2025, down from 50 megatons in 2019. With iron and coal exports a key component of the Australian economy, now may be the time for miners to look for new trading partners.
In 2019, Japan received the second-highest value of Australian mineral exports behind China, with trade worth around $6.7bn (A$9.5bn), 8.8% of the total export value. This was up from a value of around A$7.9bn ($5.6bn) in 2017 and reversed a slight decline to A$7.6bn ($5.4bn) in 2018, suggesting a steady increase in the value of Japan to Australian mineral exporters.
Chief among these importers is Nippon Steel, the firm that was responsible for the production of 39.9% of Japan’s steel in 2020. As iron is a key component in the production of steel, Nippon Steel has long relied on Australian exports for its work, importing A$8.7bn ($6.2bn) worth of iron and coking coal in 2015, and investing around A$2bn ($1.4bn) in Australian mines since 1977.
The sheer length of time of this relationship – Nippon Steel has purchased around A$44bn ($31.2bn) worth of Australian minerals over a five-year period – has helped solidify a trading partnership that has endured, despite Japan’s gradual decline in steel production.
In the 10 years to 2020, Japanese steel production has fallen from 110.8 million tons to 82.8 million tons, yet Nippon Steel’s output has remained relatively stable, its contribution to Japan’s total steel production increasing from 29.3% to nearly 40% in this period. For as long as Nippon Steel prioritises Australian minerals, this relationship could prove to be a fruitful one in the long-term.
South Korea’s import of Australian minerals has only grown in recent years, with the total value of such imports increasing from A$5.9bn ($4.2bn) in 2017 to A$7.6bn ($5.4bn) in 2019, driving an annual growth rate in this sector of around 8.9%.
This demand has been driven by consistent growth in South Korea’s energy needs. In the two decades between 2001 and 2021, total energy demand increased by around 50%, from 193,379ktoe (kilotons of oil equivalent) to 298,152ktoe over this period. With aspects of South Korea’s domestic energy infrastructure struggling – oil production collapsed from 572,000 tons to 117,000 tons over this period – it is no surprise that South Korea has looked to its neighbours to fill in the fuel shortfall.
Indeed, in 2020, South Korea imported around A$11.7bn ($8.3bn) worth of coal briquettes, making it the fourth-largest importer of coal briquettes in the world, and $3.6bn (A$5bn) worth of coal came from Australia, more than any other country.
Yet as is the case in many countries, South Korea is looking to reduce its reliance on fossil fuels; the decline in domestic oil production was no accident, and there is a very real possibility of coal demand falling considerably in the coming years.
Between 2018 and 2020, South Korean coal consumption declined by 16%, reversing close to a decade of growth that saw consumption increase by around 2% a year between 2010 and 2018. South Korea remains a stable trading partner for Australian coal now, but it remains to be seen if this will be the case in the long-term.
Trade between Australia and the Philippines has been less consistent than in other countries. In 2017, the value of Australian mineral exports to the Philippines was A$779.5m ($552.6m), before declining to A$584.9m ($414.6m) in 2018 and rebounding to A$840.7m ($596m) in 2019. Over this period, the Philippines’ position on the ranking of countries by Australian mineral import value also fluctuated, staying at fifth from 2017 to 2018 before climbing to fourth in 2019.
This fresh growth will be buoyed by the Philippines’ recent overturning of a ban on open-pit mining. In 2021, the government repealed a moratorium on large-scale mining first issued in 2017. to the repeal is intended to expand the country’s industrial production and strengthen its economy, considering that, prior to 2021, only 5% of the Philippines’ mineral reserves had been mined.
This demand for domestic production has not impeded mineral imports; indeed, both have increased in tandem. According to government figures, domestic coal production has increased from 5.2mmt (million metric tons) to 15.3mmt between 2009 and 2019, while total coal imports has jumped from 7mmt to 27.7mmt.
Indeed, with coal exports increasing from 2.3mmt to 10.2mmt over this period, it is possible that the Philippines is planning to use foreign coal to meet its own energy need, while the coal that it produces domestically is used for sale overseas. This combination of interest in mineral exploration and desire to both import and export more raw materials could stand the Philippines in good stead to be a trading partner with Australia for years to come.
Vietnam has seen the most dramatic increase in its import of Australian minerals, with the value of such imports increasing from A$183.4m ($130m) in 2017 to A$698m ($494.8m) in 2019. Over this period, Vietnam’s position in this ranking also increased dramatically, from boasting the 11th-most valuable mineral trade with Australia to the fifth-most valuable. By 2019, the annual growth rate of this trade was 26.1%, the highest of any country among Australia’s 10 most valuable mineral trading partners.
A key reason for this significant growth is a vast increase in Vietnam’s industrial demands. Between 2010 and 2020, the country’s coal consumption more than tripled, from 0.61 exajoules to 2.1 exajoules. While domestic coal production has increased in the last few years – from 38.4 million tonnes in 2018 to 48.6 million tonnes in 2020 – imports will be required to meet this staggering demand.
This increase in domestic production has also driven a surging export market for Vietnamese coal, iron, and steel. Steel exports increased from 428,361 tonnes in May 2020 to 885,366 tonnes in June 2020, for instance, and the value of Vietnamese iron and steel exports to the EU increased from less than half a billion dollars in 2020 to close to $2bn in 2021.
Yet the Vietnamese Government may prefer these commodities to remain within Vietnam, and last year increased the export tax on steel billets by 5% in an effort to keep metals within the country. With this in mind, and Australia eager for a new trading partner as Chinese interest in its commodities wanes, Vietnam could prove to be a valuable trading ally in the long-term.