Earthmoving Industry Insight, Opinion

Raw material exports boosted economy in pandemic

Australia’s export of raw materials helped keep the economy afloat during the COVID-19 pandemic, but Australia only has five to 10 years left with its major buyer.

Loading iron ore onto a ship at Dampier in Western Australia. QIS chief economist Dr Matthew Peter says exports of iron ore to China will drop off within five to 10 years

China’s reliance on raw materials helped Australia minimise the economic impact of the COVID-19 pandemic, Queensland Investment Corporation (QIS) chief economist Dr Matthew Peter says.

Peter, speaking at the Civil Contractors Federation Queensland Ltd (CCF Qld) 2021 State Conference in October, stated that despite ongoing tensions between Australia and its largest trading partner, China helped ease the burden of the pandemic.

While China faced the initial brunt of COVID-19 throughout the early months of 2020, the nation quickly responded and propped up their own economy by importing vast amounts of Australian raw materials.

“The good news is, China saved us to some extent in COVID,” says Peter.

“They did infrastructure spending to save their own economy. They propped up the property market to prop up their own economy.”

Chinese demand for iron ore – Australia’s largest export commodity at 15.2 per cent of total exports – helped keep the domestic price high. Demand for steel and coal also drove those prices higher, before sales of the latter were later banned completely.

“They did try and ban everything else we produced and sell to them, but they are sort of small biscuits compared to those two inputs,” says Peter.

“They then banned coal, but we were able to shift coal to other places.

“They can’t do that with iron ore and that’s why they haven’t banned it and that’s why they haven’t put tariffs on it.”

Figures from the Australian Bureau of Statistics (ABS) indicate iron ore exports to China soared throughout 2020 and despite an initial dip amidst the beginning of the pandemic, reached as high as $8.6 billion in June – a record for iron ore exports and second highest total of exported goods to China on record.

However, despite China’s thirst for Australian raw minerals, Peter says our reliance on them for the sale of raw construction materials has a waning lifespan, exacerbated by the ongoing tensions between the two countries.

“We’ve got a lot of issues with China, which I think are going to plague us for another decade,” he says.

“We’ve probably got around five to 10 years where we can live off the bulk commodity exports in Australia. After that, China will find a way to get rid of us, so we have five years to use those receipts from those commodities to transition away to new industries.

“Those new industries will need to involve new and renewable energy and it’s got to involve new energy sources as well. All of that means that infrastructure spending in construction [in Australia] has a really good backdrop if that’s the way to go.”

Moving forward, Peter says the greater reopening of the Australian economy will hinge on the recovery from COVID, including vaccination rates and the construction industry’s dependence on migrant workforces, yet in the most part, the outlook is optimistic.

“I don’t think we’re going to get back to where we would have been had COVID not occurred. The reason for that is, it all depends on what we do with immigration.

“I know this is really affecting the construction industry at the moment because of the reliance partly on skilled migrants to fill jobs.

“Now, we’ve completely closed off our migration program and so over the past two years and we’ve lost out on 600,000 skilled migrants out of the workforce.

“In terms of the Australia economy, I think there is a great outlook. We’ve had a pretty strong recovery, we’re getting out vaccination rates up, we’ve opened our economy. It looks like good news.”

Send this to a friend