Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Africa's miners and winemakers toast China's row with Australia

Stock MarketsFeb 10, 2021 06:51AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
4/4 © Reuters. Bottles of South African wine are displayed among others at a supermarket in Beijing 2/4

By Joe Bavier, Tanisha Heiberg and Emma Rumney

CAPE TOWN (Reuters) - For South African winemaker Vergenoegd Löw, the pandemic could have been a disaster but a bitter trade war between China and Australia has thrown the 325-year-old estate a lifeline.

Bottles of its reds, whites and roses piled up when South Africa banned alcohol sales under a strict lockdown and visitors who once flocked to the vineyard near Cape Town to sip wine and snap photos of its famed Indian Runner ducks vanished.

That changed when Beijing slapped tariffs of up to 212% on Australian wine in November after Canberra led calls for an inquiry into the origins of the COVID-19 outbreak in Wuhan.

It wasn't just wine. Beijing hit a range of Australian goods with punitive duties, created new layers of red tape and banned some Australian imports outright, giving African suppliers of anything from coal to beef to copper a boost.

"We can now get much greater volumes of sales," said Shaun McVey, marketing manager at Vergenoegd Löw, which has signed a new Chinese deal. "Instead of sending maybe three or four containers in a year, we've upped that to 15 to 20 containers."

Chinese drinkers bought nearly 40% of Australia's wine exports before the long-simmering tensions between Beijing and Canberra boiled over and brought the trade to an abrupt halt.

Over the past three months, exports of South African wine to China jumped 50%, according to the Wines of South Africa trade body, and hopes are high for even more sales once Australian stocks are polished off during China's Lunar New Year holiday.

Martyn Davies, Deloitte's managing director for emerging markets and Africa, said a protracted trade war would create a wide window of opportunity for miners and other sectors such as agribusiness, though seizing the potential would take work.

The Chinese market presents a range of obstacles, from language barriers and inscrutable bureaucracy to tailoring marketing to its unique social media ecosystem, analysts said.

"Many African companies are significantly behind the curve," said Deloitte's Davies. "Australian companies have been engaging China for 35 years."

BAUXITE BOOST

The lack of trade deals between China and countries in sub-Saharan Africa also means exporters may face an uphill battle.

Despite its increasingly important role as an investor on the continent, China only signed its first free trade agreement with an African country, the Indian Ocean island nation of Mauritius, in January.

So while some African products may leapfrog Australian goods in the pecking order, they remain at a disadvantage when competing against exports from countries with preferential Chinese trading terms such as Chile, Peru or New Zealand.

In the mining sector though, China has spent the past decade ramping up projects in Africa to safeguard the flow of raw materials to the manufacturing juggernaut.

Those investments are now paying off and African producer countries are pocketing the royalties as exports to the world's second biggest economy get a boost at Australia's expense.

Last year, state-owned Aluminum Corp of China Ltd, known as Chalco, shipped the first bauxite cargo from its Guinea project, and a prolonged trade war between China and Australia is only likely to help the West African country's economy.

Australian shipments to China of the rock used to make aluminium dropped 22% in the final quarter of 2020 while imports from Guinea leapt 70%, according to Chinese customs data.

That's after Guinea tripled its bauxite output between 2015 and 2019 as mining projects came online, with most of it going to China. Over the same period, Guinea's gross domestic product jumped 40%.

Graphic - China switches to Guinea bauxite as it shuns Australia: https://graphics.reuters.com/AFRICA-CHINA/TRADE/rlgpdemxrvo/chart.png

Chinese copper concentrate imports from Australia, meanwhile plummeted to zero in December 2020. At the same time, exports rose 17% from Democratic Republic of Congo, another country where Chinese companies such as China Molybdenum have invested heavily to secure key mineral supplies.

South Africa's coal industry has also got a much-needed boost. Australian sales to China of thermal coal, which is mainly used in power plants, and metallurgical coal for steelmaking, slumped to zero in December.

The first shipment of South African thermal coal to China in five years landed last month and exporters are hopeful sales will increase further in 2021.

Graphic - China's copper imports from DRC surge: https://graphics.reuters.com/AFRICA-CHINA/TRADE/gjnvwzgjzpw/chart.png

'INNOVATIVE AND BEAUTIFUL'

To overcome the lack of trade deals with China, South Africa's Standard Bank, which is partly owned by Industrial and Commercial Bank of China, has sought to level the playing field.

Africa's largest bank measured by assets is using online platforms and events to match its customers with Chinese buyers in a bid to boost exports.

Those efforts, however, now face challenges unique to the coronavirus pandemic, such as a shipping squeeze due to global trade distortions that have sparked a bidding war for container space and pushed prices to record highs.

"You get a lot of interest. And then when people see the cost of logistics at this point in time, they end up not concluding on the transaction," said Philip Myburgh, Standard Bank's head of Africa-China banking.

Still, wine is one African export Standard Bank considers a good bet. So does Edouard Duval, chief executive of East Meets West Fine Wines, one of China's biggest wine importers.

If South Africa can capture just 1% of the 38% market share Australian imports are rapidly vacating, it would double its exports to China, he said. "The potential is there ... it's a very dynamic and fast-moving market."

South Africa typically exports less than half of its wine and earned 9.1 billion rand ($616 million) from overseas sales last year, with Britain buying by far the most. Sales to China came to just $19 million.

Even though Chinese tariffs wiped out Australian wine sales in November and December, its exports to China alone still came to A$1.01 billion ($779 million) last year.

At his "Cheers" wine store in Beijing, Lin Lulu is not too concerned about the impact of the trade war with Australia.

"South African wine now has great advantages over Australian wine because of the new tariff situation," he said as he stocked his shelves with South African reds. "South African wines are more innovative and beautiful."

($1 = 1.2962 Australian dollars)

($1 = 14.7621 rand)

Africa's miners and winemakers toast China's row with Australia
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Stella Stella
Stella Stella Feb 10, 2021 10:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
"Don't *****the hand that feeds you".
Stella Stella
Stella Stella Feb 10, 2021 10:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
"Don't *****the hand that feeds you ".
Jason Zou
Jason Zou Feb 10, 2021 8:45AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Canberra thought it could extort Beijing over pandemic, at the same time abet Washington DC’s attack on Beijing to hinder China’s advance, in the fancy idea that 5-Eyes were superior than others and may dominate the world in their own terms forever. It is simply laughable and asinine on Canberra. They were kicking around the world too long, so they must ***their own boots for dinner.
Nordic Fire
Nordic Fire Feb 10, 2021 3:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Someone should ban countries known for spreading deadly pandemics from trading food or drink
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email