China turns to lobsters, wine and coal to 'punish' Australia

[NEW YORK] What started as a political spat between Beijing and Canberra has become a one-sided trade war that threatens serious disruption for an expanding number of Australian exporters.

China won't allow imports of a swathe of Australian commodities and foodstuffs from as early as this week, according to people familiar with the matter. The curbs are a major escalation in Beijing's pressure campaign following a two-year stand-off over issues from technology to the origins of coronavirus.

China's blacklist - delivered verbally to commodities traders - includes coal, barley, copper, sugar, timber, wine and lobster. It doesn't cover materials, like iron ore or natural gas, where import curbs could unduly damage China's own economy.

"The Chinese warned earlier this year that many of the goods that Australia exports were replaceable," said Richard McGregor, senior fellow at Sydney-based think tank Lowy Institute. "Now they're going about replacing them. China seems determined to punish Australia and make it an example to other countries."

That means pain for global commodities groups hauling coal from huge mines in eastern Australia, or lobster farmers rearing the creatures off the country's west coast. Winemakers, who've enjoyed a booming demand from China's growing middle-class, may suffer.

Here's a look at some of the trade routes about to get rattled.

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COAL COUNTRY

The black stuff used to generate energy or make steel is the chunkiest of China's targets. Coal accounted for about 9 per cent of all Australia's earnings from exports to China last year, far behind the biggest contributor iron ore and a few notches below natural gas.

Iron ore is seen as more immune from trade actions because China's sprawling steel sector needs vast quantities of Australia's high-quality ore. The remaining products now in China's crosshairs all fall in the "other" category. Together they might account for about 5 per cent of export revenues if wheat is included, according to Bloomberg analysis of Australian government data.

WINING AND DINING

Beijing doesn't seem concerned about its richer population's demand for Australian lobster or fine wines. For premium wines, China is Australia's biggest buyer, spending almost A$1.2 billion (S$1.17 billion) in the year through September, according to trade body Wine Australia. That's about two and a half times bigger than its exports to the US.

The industry has been bracing for trouble in its top market since China announced two trade investigations into Australian wine earlier this year. Shares of one Australian producer, Treasury Wine Estates, dropped as much as 3 per cent on Tuesday, the most since September.

COPPER CONUNDRUM

The copper market spotlights the trade mismatch between the two countries. About 55 per cent of Australia's mined copper exports headed for the Asian nation last year. But Australia made up barely 5 per cent of China's needs, meaning it shouldn't be too much of a problem for its smelters to source alternatives.

One Australian copper producer Sandfire Resources fell as much as 9 per cent, although the company said it was confident of finding alternative customers if needed. "The ore from Australia might still get shipped to China after blending or in refined form," Eric Liu, head of trading and research at AKS Resources said from Shanghai.

WOODEN RESULT

Though Beijing will halt sugar and wood imports, they aren't big export earners for Australia in trade with China. The Asian nation banned timber imports from the state of Queensland after finding pests during checks, the customs administration said last week.

BLOOMBERG