Australia’s commodities sector is nervously watching China

Australia’s commodities industry is nervously watching its biggest trading partner, China, after the Asian behemoth slapped more import restrictions on its agricultural products.

In the latest move, the world’s largest consumer of agricultural goods suspended shipments from CBH Grain Pty in Western Australia because harmful weeds were found in the cargoes, according to a statement from Chinese customs. CBH said Tuesday its exports to China met all requirements and it will work with the government to challenge the decision.

The halt to CBH shipments is unlikely to have a big near-term impact as exports to the Asian country have already dropped sharply in the past year, amid the uncertainty created by Chinese investigations into the industry, and its subsequent imposition of tariffs of more than 80% on imports of the grain.

“In practical terms, the ban means nothing,” said Ole Houe, chief executive of IKON Commodities, by email.

Still, it’s another blow to Australia, after China this year already banned shipments from several meatworks, and in the past two weeks launched twin investigations into the wine industry.

“The export suspension can also be seen as part of the broader souring of relations between China and Australia,” Tobin Gorey, commodities strategist at Commonwealth Bank of Australia, said in emailed comments. The bans and wine probes “can only serve to heighten debate in Australia on how best to manage that tension,” he added.

Big Tickets

So far, the goods targeted in Beijing’s trade spat with Canberra are just a sliver of Australia’s commodities sales to the country. The big ticket items to watch are iron ore, gas and coal. The latter was a counter in last year’s trade hostilities, which saw Australian coal subject to Chinese port delays in suspected retaliation for Canberra’s ban on Huawei Technologies Co.

There’s no evidence so far this year that China is willing to disrupt the enormous flows of these commodities upon which so much of its industry relies. But markets remain nervous. Beijing’s routine coal import curbs are regularly watched for evidence that Australian shipments are being targeted. Tweaks to iron ore import procedures in May were parsed for signs that Beijing could be creating a mechanism to disfavor Australian cargoes.

Little to no Western Australian barley was expected to be sent to China from the 2019 crop but more than 500,000 tons of barley was expected in the 2020 season, Gorey said. “Obviously the worry for CBH and WA growers is that these bans will be extended to other CBH exports, like wheat,” Gorey said.

The CBH ban seems “fairly redundant” in the near term, Cheryl Kalisch Gordon, Rabobank senior grains analyst, said by phone. Still, it could have a long-term impact on the company as it now has both “technical barriers and political” actions to overcome before it can resume shipments, Kalisch Gordon said.

Australian Finance Minister Mathias Cormann told reporters Wednesday that once the government knows more details of the ban, it will work with CBH to make the appropriate representations to China, he said. The government respects the fact that China has quarantine inspection arrangements, he added.