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Iron ore on railway wagons at Salanaha Bay Terminal in South Africa. Education Images | UIG | Getty Images SINGAPORE — As tensions between Australia and China continue to simmer, Beijing
needs to think about diversifying the supply of one key commodity from Down Under, according to an analyst. Beijing imports 60% of its iron ore from Australia, and is heavily dependent on
the commodity, which it uses to make steel. China is the world's top producer of steel. Other Australian exports to China have been affected by the deteriorating relationship between
the countries, with Beijing hitting goods such as wine and barley with tariffs. Bilateral relations between Canberra and Beijing soured earlier this year after Australia supported a growing
call for an international inquiry into China's handling of the coronavirus pandemic. But Beijing has, so far, spared iron ore from Australia, which analysts attributed to the lack of
alternatives available. Australia is the world's largest iron ore producer. However, Peter O'Connor, senior analyst of metals and mining at investment firm Shaw and Partners, says
that Beijing now needs to consider diversifying its supply of iron ore. "That direction or that narrative that we need to think about, that started several years ago … was about
diversity of supply. It's where can China source, how can they diversify away from Australia, also Brazil," he told CNBC's "Street Signs Asia" on Tuesday. Brazil is
the next largest supplier of iron ore to China, but has its own slate of issues. In January 2019, a deadly dam disaster at a Vale iron ore site led the Brazilian mining giant to halt
production at ten locations. Vale is the world's second-largest iron ore producer, and its biggest market is also China. Following that accident, Brazil has struggled to get its iron
ore exports back to 2018 levels, said Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank of Australia. Iron ore prices recently spiked as demand from
China rose, and have been further stoked by dwindling supply and disruptions caused by storms hitting Australia. At the same time, China's economy has largely recovered from the worst
of the coronavirus hit, fueled in part by funneling stimulus into infrastructure. ONE POSSIBLE SOURCE OF IRON ORE Shaw and Partner's O'Connor said, however, China has an
alternative source that they could fall back on. "China needs to diversify their supply, and I think the country where they will most likely do that, which has been simmering for some
time, is a country in West Africa called Guinea … and probably largely China funded and developed," he said. Guinea says its Simandou region boasts an estimated 1.8 billion tons of iron
ore reserves — the world's largest known, yet untapped deposits. Reuters previously reported that Baowu Group, China's biggest steel producer, plans to invest in the Simandou iron
ore mine and develop the deposit with other steel makers. The news agency has also reported that a China-backed consortium won a $14 billion government tender in Guinea to bring the
Simandou iron ore deposit into production by 2025.