Iron ore seen safe in China-Australia rift

Colin BrinsdenAAP
Fitch Ratings says Australia's iron ore is critical to China's industrial development.
Camera IconFitch Ratings says Australia's iron ore is critical to China's industrial development. Credit: AAP

An international credit rating agency believes Australia’s exports of iron ore to China will continue, even if the political and trade frictions between the two countries continue to escalate.

Fitch Ratings expects any further punitive trade measures imposed by China will target Australia’s smaller export industries.

“This would reduce the risk of adverse effects on China’s labour market or near-term growth prospects,” Fitch says.

In contrast, iron ore - Australia’s largest export to China - is a critical input to China’s industrial development.

“This suggests that the potential economic spillovers to Australia’s growth outlook from Chinese trade restrictions would be modest,” it says.

Even so, the impact on Australian firms in sectors targeted by Chinese measures may be more serious.

Some sectors hit by Chinese actions, such as barley, copper and coal, have been able to find alternative export markets.

“But others with more limited diversification prospects, such as wine, have been more affected,” Fitch says.

In the longer term, Fitch warns Australia’s commodity export competitiveness faces risks stemming from potential overseas supply increases and shifts in demand driven by environmental and industrial policies.

“Many of these risks are typical of commodity exporters generally, but tensions with China could play an important role in some of these dynamics,” it says.

Get the latest news from thewest.com.au in your inbox.

Sign up for our emails