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China tensions impact Australian mining supply and demand

KPMG has identified structural shifts between major mineral producing nations as a major risk for Australia’s resources sector.

A KPMG report released this week, Geopolitics and the Australian minerals industry, outlines geopolitical risks that the resources sector is facing, including domestic discontent, industrial revolution 4.0 and the climate crisis.

According to KPMG, the increasing economic power of China has been met with its demand for more voice and agency.

This has resulted in growing tensions between Australia and China, which led to a ban on Australian thermal coal shipments.

Australia remains the world’s largest supplier of iron ore, with the majority shipped to China.

More than half of Australia’s resources were shipped to China in 2019-20, which reached $127 billion in export revenue.

“Indeed, the volatile geopolitical context means that while Australia’s iron ore exports to China are strong now and likely to hold into the immediate future, we should not become complacent about iron ore’s role in Australian trade, or as a lynchpin of our relationship with China, over the longer-term,” the report stated.

Sixty per cent of China’s iron ore imports are sourced from Australia, however the dependency is showing signs it will soften, as Beijing focusses on ramping up scrap steel recycling and overseas mining project investments to diversify supply.

China’s mining investment includes the proposed Simandou iron ore mine in Guinea.

While the risks are present, KPMG Australia geopolitics lead Merriden Varral said there are positives to the situation.

“Global geopolitical volatility presents risks but for those on the front-foot, it also presents significant opportunities. This is very important in the critical minerals and mining sector in Australia,” he said.

“Keys to Australian industry success are increasing resilience and a company’s preparedness to effectively navigate geopolitical risk.”

By preparing for these changes, Australia can stay on top of the resources ladder and capitalise on the growing critical minerals market.

Australia is currently the world’s top producer of lithium and rutile, and second largest producer of zircon and rare earth elements.

“Rapid technological advances and community expectations for decarbonisation are driving increasing demand for renewables, and, at the same time, an increasingly unstable geopolitical environment is impacting the Australian minerals sector,” KPMG national mining leader Nick Harridge said.

“Given its critical mineral leadership positions, geopolitical shifts are of vital importance to the Australian minerals sector.

“Opportunities exist to improve the minerals sector’s preparedness for geopolitical disruption.”

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