If you believe the media, China’s attacks on Australian exports are a major crisis threatening to wreak havoc on companies and jobs.
Outlets like the Financial Review are regularly running op-eds urging Australia to cave in to China’s bullying in the name of restoring good trade relations. There was great consternation when shares in Treasury Wine Estates fell 11.25% on Friday before a trading halt, in response to China’s punitive tariffs on Australian wines under the guise of anti-dumping.
But don’t forget: Treasury shares fell in late January, down from $17.30 on January 24 to $12.35 on January 29. This was not caused by Chinese tariffs, but by a profit warning because of weak sales in the US (the earlier than expected retirement of CEO Michael Clarke also added to the selling pressure).
The Chinese anti-dumping claims came in August, which saw Treasury shares plunge from $12.84 to $9.57 — not far from Friday’s $9.25. The $2.54 billion in market value the Chinese tariffs cost Treasury was much less than the cost of a weak result and a surprise departure of the CEO.
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But while Treasury was being hammered, BlueScope Steel — Australia’s worst abuser of anti-dumping laws, particularly against more efficient and cheaper Chinese competitors — has been doing very nicely. Its earnings are soaring, with two upgrades in two months and a share price that has surged from $7.73 in the depths of the March sell-off to $17.30 on Friday.
According to BlueScope “demand strength, particularly in the Australian market, has continued to outpace our expectations. We now expect that Australian construction and manufacturing activity will remain strong, driving elevated domestic steel despatches for the balance of 1H FY2021”.
Part of that domestic success has been from keeping Chinese imports out — thus pushing up prices for the construction industry and consumers.
BlueScope’s star business, though, is its North Star steel plant in Ohio. This is a direct beneficiary from Trump’s 25% penalty tariffs on steel imports — principally from China. BlueScope also has a modest business in metallic coating, painting and steel building product operations in China which “saw a better than expected recovery following the COVID-19 shutdown”.
Since late August, BlueScope’s sharemarket value has risen $2.3 billion, off the back of Australian and US protectionism — protectionism of the good old-fashioned kind that passes the costs on to other business and consumers.
If Australia and BlueScope hadn’t so egregiously abused anti-dumping rules in the first place, maybe the Treasury Wine Estates of our economy would have less to complain about.
As for the bigger picture on trade, our iron ore exports hit a record $10.9 billion in value in October with prices averaging US$100 a tonne for the first time since 2013 — fuelled of course by China. Copper prices have surged 70% since the lows of March and are up 12% in November. Lead, zinc, and nickel also rose last week. Zinc reached a 20-month high.
Rising oil prices are dragging up LNG prices (oil prices are up 27% so far in November). Agricultural commodities are strengthening too — wheat and corn are near four-year highs, while soybeans are rising because China is buying more than the US.
Coal prices remain weak because China is banning Australian shipments, but that is forcing up global prices for coking coal especially, with Chinese steel mills forced to pay higher prices for Canadian and US coal and ship it further (protectionism does that to those stupid enough to use it).
And China’s belligerence towards Australia has been easily absorbed by currency markets this month. The dollar peaked at 74.14 US cents in September and touched 73.99 US cents on Friday. It could easily run back over 74 US cents. AMP chief economist Shane Oliver reckons there’s a chance the dollar could hit 80 US cents in the next year.
That would put further downward pressure on inflation, which is the opposite of what the Reserve Bank (RBA) wants. Rising oil prices will help, but without wage rises, the prospect of any inflation pressure seems more remote than ever.
RBA governor Phil Lowe has said a key reason the bank decided to spend $100 billion buying bonds around the 100-year mark was because quantitative easing programs elsewhere in the world were boosting Australian interest rates.
“[This] added to the attractiveness of Australian dollar assets and this has put some upward pressure on the exchange rate,” he said.
Since then the Aussie dollar has risen more than three US cents.
If Chinese trade sanctions were considered a real threat, then the Aussie dollar would have been sold down heavily in November. Hardheads in the markets know that a lot of it is for show — and that when it comes to protectionism, China is hardly alone.
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Good article on the whine industry!
And good comment on the non-whining, suspiciously silent steel industry.
Chinese trade sanctions are a real threat. What has been applied, to date, are merely odds and ends around the edges. Similarly the (so called) 14 Objections are an (Asian centric) invitation to recommence discussions directed to a clear purpose. Bogging down on the 14 points is not anticipated.
As for dumpling plonk take it from me that it is (or was) rife. After a decade I departed at the end of August last year. Carrefour or Ole or any Western supermarket had (in A$) Jacob’s at $6 top end Brown Bros at $12 Bin 128 at $15 and 389 at $25 – 40. Some places would offer Westerners miniatures (~185ml) with purchases over 350Y (RMB) or about $70
Funny, Murphy raised this hypocrisy on Insiders yesterday – but Spivsy wanted to ‘turn the page’ to his narrative.
The amount of wine produced, and the amount of wine consumed, globally, are unlikely to change (much) as the result of these tarrifs. Our wine gets more expensive in China, so they might buy a bit less of it, but they’ll make up by buying from the other producing countries, who’s customers will have to make up the shortage of supply by buying ours. Probably at higher prices. Win for everyone except Chinese consumers?
So much for the theory, Andrew, but the reality is a tad different. Mao (long story) had the vineyards destroyed but the brewreys were retained.
The upper Chinese market is taking an interest in plonk (along with higher grade Maults) but prices are not their first concern. There is a moderate market for Chinese alcoholic beverages that the ‘average’ person may buy.
As an aside, a national wine industry is being developed but it has a good way to go. Over the years I have been invited to various wine tasting functions. Frankly, I’d buy a bottle of Chinese Red only if, for some reason, I needed to chemically extract the tanin.
I should have mentioned that Chile, South Africa, Argentina and California are the major alternative locations for wine imports (in about that order).
Well, my “theory” was more physics than economics, of which I know almost nothing. I dare say that my take is unrealistic.
I have seen Australian wine on the shelves in most parts of the world, so someone’s moving it around. Mostly Jacobs Creek and Yellowtail, but sometimes others.
I didn’t much enjoy the one Chinese red I’ve tried, but they are growing a lot of it: producing as much wine as Australia, give or take, and more area under vine than France. So perhaps it’s good old protectionism at work. (according to figures from a BKWineMagazine article that google found for me, vintage April 2019)
In Asia there is always “the book” which can be pointed to as and when deemed necessary. It is not about protecting domestic industry. Similar remark to yours could be made for Kiwi fruit. It is about Morrison being a twit.
A decade ago one had to look damned hard just to find butter even in western oriented supermarkets such as the German “Metro”. Such were the questions encountered in Expat magazines. Now, (eg) one has a choice of a dozen brands of butter and cheese in a supermarket of moderate size.
The population of India is rivaling that of the PRC. The difference is that the PRC has their population under control whereas the population is out of control in India – to say nothing of the scewed sectors (primary, secondary and tertiary). Australia is making a monkey’s breakfast of a very dangerous game.
Cheese & butter widely available? So much for that lactose intolerance gene STB widespread in the Middle Kingdom.
Starbucks does a roaring trade with flat whites and lattes with the 19 to 30 group.
In the UK the best selling wine for decades has been Jacobs Creek, despite being twice the price of Bulgarian laundry claret.
With Brexit about to crash down I’d suggest that they’d all that we could send, smoke tainted or not.
How stinkin’ odd that the US keeps benefiting from the things they ask us to do while we cop all the downsides!
Almost as if there were a plan.