‘Big problem': Choice that could decide Australia's economic future
The Prime Minister held a roundtable on Monday with key local mining figures and Chinese steelmakers to spruik the benefit of buying Australian iron ore.
Much of Australia's wealth is made off the back of the mining sector, as Australia pockets around $105bn in return for supplying China with around two-thirds of its iron ore needs.
In 2024, Australia sold more than $150bn of iron ore around the world.
But this relationship is coming under threat as China's huge steel manufacturing sector looks to decarbonise, meaning they could need the higher quality iron ore found in the likes of Brazil and Guinea.
AMP chief economist Shane Oliver told NewsWire how damaging any changes to iron exports would be to the national economy depends on the pace of change.
'My take on that is if it occurs gradually over time, then Australia would adjust,' he said.
'If it occurs very quickly in a short space of time then it'd be a big problem.'
'It comes to the broader issue that about 35 per cent of our exports go to China,' Dr Oliver said.
Dr Oliver flagged it could be any number of reasons which could impact Australia's iron ore miners, listing supply from other sources, a hit to the Chinese economy, geopolitical issues with the US as potential reasons for slowing this trade.
He said while there was fresh interest in the issue in the context of other tensions between the two countries, the problem was nothing Australia hadn't endured before.
'I can understand why people love to talk about it, but it's been around for the last couple of decades and it is an issue,' he said.
'By the same token in a market economy like Australia, the decision of where our exports go is basically, I'd say 90 per cent driven by free markets and companies operating within that.'
Despite the looming risks, Australia could remain 'the lucky country' based on two potential replacements to the country's large iron ore intake.
'We had been moving towards services exports, particularly education,' Dr Oliver said.
'That is why we have to be careful here that Australia doesn't shoot itself in the foot by restricting immigration that turns off the education export sector that is a potential replacement.
'I suspect if things had continued as they were we would have found a situation where in the next few years, education would've been our second highest export, ahead of gas and coal and just behind iron ore.'
However, Australia is already struggling with a housing crisis and both major parties used the recent election to point to international students as a key reason why rents are skyrocketing.
Previous research from the Property Council of Australia suggests just 4 per cent of rentals were taken up by international students, while a further 6 per cent was taken up by domestic students.
The other aspect is a boost to the lithium and rare earths sector which is tipped to boom in future years.
'You want to make it easier for companies to develop new industries, with rare earths for example being a potential hedge [to iron ore],' he said, noting Australia had plentiful reserves.
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