China and Australia Sign Free Trade Pact

The free trade agreement between China and Australia should provide an additional supply of goods for the world's second largest economy, helping Chinese producers to reduce the cost of materials such as coal and iron ore. After more than a decade of negotiations, the two sides finally signed the Sino-Australian Free Trade Agreement, giving more choices to Chinese steel companies and power plants in the import of iron ore and thermal coal.

Zhang Ling, senior fellow at the Lange Steel Research and Information Center, warned that the Pact “will bring tough competition to Chinese miners who are already suffering from a weak market and falling prices. The slowdown in economic growth in China caused a decrease in steel demand, which led to a decrease in imports of iron ore. This is a concern among Australian miners as well, as mining accounts for about half of the country's economic growth. ”

Australia is the largest supplier of iron ore to China, supplying approximately two-thirds of total demand. The agreement will help Australian iron ore miners sell their products on preferential terms to buyers in China that will benefit the Australian economy. Iron ore levels for immediate delivery to Tianjin Port in China are trading at $ 60.90 a tonne, their lowest level since May 26. However, the commodity remains well off its April 10-year low of $ 46.70.

Australian coal miners will benefit from the agreement as well. Under the terms of the agreement, tariffs on coking coal exported from Australia to China are being lifted, dropping from 3 percent to zero immediately. The thermal coal tariff will be phased out over two years. In addition, tariffs are expected to be eliminated on a wide range of Australian manufactured goods, including pharmaceuticals and automotive engines.