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China, Australia's multiple options leave experts unfazed by copper ban claim

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China, Australia's multiple options leave experts unfazed by copper ban claim

Experts say China's reported ban on imports of copper ore and concentrate from Australia will have little impact on either country if true, due to both countries having multiple import and export options available.

Traders in the country were given verbal notice to stop importing copper ores and concentrate from Australia, a China-based analyst who prefers to be anonymous due to the sensitive nature of the topic confirmed to S&P Global Market Intelligence. China ordered traders to stop purchasing at least seven categories of Australian commodities, including copper, as of Nov. 6, Bloomberg News reported Nov. 3, citing anonymous sources.

When asked about reports of the import ban during a Nov. 2 press conference, Wang Wenbin, the spokesperson for China's foreign ministry, said China hoped Australia could bring relations between the two countries back on track and do more to enhance mutual trust and cooperation.

Seeking clarity

Speaking about Australia's relationship with China during the Africa Down Under conference in Perth, Bill Johnston, Western Australia's mining minister, said Nov. 4 that his state's government respects the federal government's "right to be responsible for international relationships, and [has] no interest in second-guessing their responsibilities."

However, Johnston said he has written to federal Australian Treasurer Josh Frydenberg seeking clarity around foreign investment reforms that are worrying China.

"Clearly if the Commonwealth is going to draw rules around foreign investments, it needs to not only explain what's not allowed but has to be prepared to explain what is allowed, and needs to be consistent in the application of those rules," Johnston told conference delegates.

State-owned enterprises, be they in China or from any other country, are also "in a different category" to private sector direct investment, Johnston said, adding that direct investment benefits both the "recipient" and "donor" country. "Therefore we would expect the [Australian federal] government to support ongoing inbound investment," he said.

After the foreign investment review was launched, the South China Morning Post reported June 11 that China's Ministry of Commerce said Australia's foreign investment policy should be "fair and nondiscriminatory ... and observe the legal rights of all foreign investments, including those from Chinese companies."

Australia's copper export earnings are forecast to rise 4% per year to A$11 billion in fiscal 2022, after reaching A$9.9 billion in fiscal 2020, according to the Australian government's Resources and Energy Quarterly for September.

The country's annual copper exports are forecast to rise from 928,000 tonnes in fiscal 2020 to 942,000 tonnes in fiscal 2022 in terms of metal content, as production expands from existing mines and new operations come online, the report stated.

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Limited impact on Chinese industry

Chen Weixuan, a copper analyst with industry data provider Shanghai Metals Market, expects any restrictions by the Chinese regulators on Australian copper ores and concentrates will have limited impact on the Chinese copper industry given Australia's shares in China's imports. "It's not difficult for Chinese buyers to seek alternatives in other countries ... they can also buy it from other large exporters or Asian traders in South Korea and Japan," the analyst said.

Australia was the fifth-largest source of China's imports of copper ores and concentrates in 2019, shipping 1.1 million tonnes of copper ores and concentrates to China, United Nations International Trade Statistics data shows. Chile and Peru were the first and second-largest exporters to China, which accounted for 53.6% of Australia's exports of copper ores and concentrates last year.

Chen said the recent news of the ban has not yet made any significant impact on the Chinese market, noting that only traders who had placed orders for November and December from Australia are worried about the potential disruption to their supply.

Western Australia's Sandfire Resources unconcerned

Western Australian copper producer Sandfire Resources Ltd. said Nov. 3 that it was "not aware of the reasons for the reported potential ban or the reliability of the media reports."

Sandfire CEO Karl Simich told Market Intelligence on Nov. 4 that the company had heard nothing from its Chinese customers about the ban and said it may learn more after certain sales tenders come in. On the sidelines of the Africa Down Under conference, Simich said it was important to note that Sandfire's capacity is about 70,000 tonnes per annum while the global copper concentrate market is about 18 million tonnes.

Simich said Sandfire's product goes to China, Japan, South Korea, "potentially Europe" and India. "So if it turns out that the Chinese don't buy it, and are told not to buy it, all that will happen is that the Koreans, Japanese and Taiwanese will buy it all anyway, so it makes no difference," he said.

The company's copper concentrate is of a high quality due to the low amount of deleterious elements such as arsenic, mercury or uranium that are present in certain other Australian producers' product, Simich said. "That's why the traders love it, as they can buy it, blend it and create a product they can sell."

"We could never fill our customers' demand because we don't have enough product," Simich added. "The reason why we sell to China is they pay, at the margin, a fraction more because they're always happy to overbid the Japanese and Koreans."