[Ferro-alloys.com]The long-awaited free trade agreement finalized between China and Australia on Monday in Canberra will significantly boost Australia's commodities market, especially its coal industry.

President Xi Jinping and Australian Prime Minister Tony Abbott jointly announced the completion of the FTA talks in which commodities including bauxite, coking coal, thermal coal and other mineral resources exported from Australia to China will be exempt from tariffs within two years.

The Chinese government's tariff committee announced last month it planned to impose a 3 percent tariff on coking coal, which is used in steel mills, and a 6 percent tariff on thermal coal, which is used in power stations, causing huge concern among Australian coal producers.

Liu Dongna, a coal analyst at Sublime China Information Co Ltd, a commodities consultancy, said that tariff could have meant cost increases of $3 to $5 per metric ton of coal exported to China.

"Australian thermal coal contains less sulphur, a product in accordance with the government's policy of encouraging high-quality coal use to reduce pollution," said Liu.

"So Australian coal producers will have high expectations of the China market. The new tariff rule hit them hard."

The Association of Southeast Asian Nations has already signed an FTA with China, and so Indonesian coal producers are unaffected by the new import tariffs - but with the agreement eventually likely to see rises in imported Australian coal, it is domestic Chinese coal producers that are going to be the hardest hit.

As Chinese coal prices keep declining, rising imports from Indonesia and Australia are likely to further scrape away at domestic producers' profits, in a market already filled with excessive capacities.

As the biggest iron ore exporter to China, too, Australia will see its mining companies enjoy considerable benefits from the FTA.

Describing the FTA as "good for our businesses", Andrew Harding, chief executive officer of Rio Tinto Plc's iron ore division, insisted it will boost the economies of both countries by bringing increased demand for steel and iron ore.

Rio Tinto Chief Executive Sam Walsh said: "We welcome the Australia-China Free Trade Agreement. It's a landmark day in the evolving relationship between the two nations. Both China and Australia will benefit from this agreement which will help promote investment flows in both directions and generate greater economic growth."

As the world's top iron ore producer, Rio Tinto has been expanding its production capacity during the downturn in international iron ore prices, and betting firmly on China's economic growth.

The company and China's State-owned Sinosteel Corp announced plans on Monday for a second extension to their Channar Mining iron ore joint venture in Western Australia's Pilbara region.

Walsh called the Channar project one of China's longest-running and most successful partnerships with Australia and a model for economic cooperation between the two countries.

The original joint venture was signed in 1987 and has so far delivered 200 million metric tons of iron ore. It was extended in 2010 to produce another 50 million tons.

• [Editor:Mike.zhang]