Australia is the world’s largest iron ore exporter and producer, exporting 892mt of the mineral in 2023, more than double the second largest of Brazil.
China is the world’s largest iron ore importer, with the country importing nearly 1.12bt in 2023, or around 76% of the world’s supply for that year.
Making up 5% of the Earth’s crust, iron ores are rocks and minerals from which metallic iron can be extracted.
Iron ore is the primary source for the world’s iron and steel industries, with almost all (around 98%) of iron ore used in the steelmaking process.
Used across a range of industries – from cars and construction products to refrigerators and surgical tools – steel is the world’s most important engineering and construction material, with 1.88bt of crude steel produced in 2023, according to the World Steel Association.
While iron ore remains Australia’s largest export earner, prices have declined amid unfavourable macroeconomic results in China as well as continuing weakness in the country’s property sector.
The year started strongly with prices at $208t (US$141t) but then hit a one-year low in early September to $134t (US$91t).
According to the Resources and Energy Quarterly – released by the Federal Government Department of Industry, Science and Resources – these lower prices will see Australia’s export earnings fall by an estimated $31b to $107b in FY25, with a further decline to $99b expected in FY26.
The Australian Mining Review takes a look at both Australia’s, with a focus on BHP (ASX: BHP), and China’s iron ore industries, producers, as well as the outlook for iron ore export.
Australia
With five mines, four processing hubs and two port facilities, BHP’s Western Australia Iron Ore (WAIO) business is connected by more than 1000km of rail infrastructure – making it one of Australia’s largest iron ore producers.
In FY24, BHP achieved record production at WAIO of 255mt.
Over the past four years, WAIO has been the lowest cost major iron ore producer across the globe and extended its position with a C1 unit cost of $23.48t (US$15.84t).
“WAIO continued its strong performance, delivering a second consecutive year of record production on the back of ongoing incremental improvements along its supply chain as we progress toward our medium- term goal of increasing production to greater than 305mtpa,” BHP chief executive Mike Henry said in the company’s June quarterly report.
Shipping to China
In September 2023, BHP celebrated the shipment of 3bt of high-quality iron ore to China.
Following its first shipment to China in 1973, it took BHP nearly 30 years to deliver its first 100mt of iron ore, and by 2014 a total of 1bt had been shipped.
BHP asset president of WAIO Brandon Craig commented on the significant milestone for the company.
“This is a significant milestone for BHP’s iron ore business and for WA, and we are delighted to commemorate the achievement, celebrate our partnerships and showcase our world class WA operations,” he said at the time.
“We are fully focused on continuing to produce and deliver our high-quality iron ore resources safely, reliably and sustainably.”
BHP is continuing to undertake portside sales to different customers across China, with 13mt of sales made in FY24, more than double the 6mt in FY23.
Future production
Since production started at BHP’s newest iron ore mine – South Flank – in 2021, over 65mt of high-quality iron ore has been produced, and the company is on track to ramp up to 80mtpa in the next three years.
Due to the project design, as well as low-cost access to existing infrastructure such as power and water, South Flank was delivered with a comparatively low capital intensity of just $45t.
As the world continues to require steel for construction and infrastructure projects, demand for iron ore is expected to continue into the future.
BHP expects FY25 WAIO production to be between 282mt and 294mt, while unit costs are expected to be between $26.68t – $28.90t (US$18t – US$19.50t).
China
Of the 1.88bt of steel produced across the globe in 2023, China was the largest producer, contributing 1.01bt.
This is more than seven times the world’s second highest producer of India, which recorded 140,761t.
Challenging conditions
China’s iron ore industry is facing significant challenges as the country’s steel mills cut production due to the country’s worsening property crisis and overabundance of the material.
In H2 FY24, the challenging conditions surrounding Chinese steel mills further deteriorated, as steel prices in the country approached five-year lows to just under $741t (US$500t).
While many Chinese steel mills have been operating with slim or negative margins for a while now, the situation worsened in August, with only 1% of China’s steel mills estimated to be operating at a profit, according to Mysteel data.
In response to the growing steel mill losses, in late August, China abruptly suspended its system that approves new steel plants as the government responded to a demand slump.
Previously, all new projects had to be approved through a capacity replacement process which required new equipment had to be inherited from old equipment that would be dismantled.
The aim of this change is to assist the steel industry in reducing overall pig iron and crude steel capacity, and to increase the share of electric arc furnace steel capacity.
Property sector driving demand
China’s property market is a major driver of the country’s steel demand, however,
with the collapse of Evergrande Group and Country Garden, supply is more than demand.
Despite the Chinese Government announcing a $104b (RMB 500b) package designed to stabilise the property sector, newly constructed floor space declined 23% in the first seven months to July 2024.
This package funds local governments and state-owned enterprises to acquire unsold properties and convert them into affordable public housing.
However, the rollout of the package has been slow to date, and additional funding will be required to absorb the excess housing inventory.
Despite this week steel demand, China’s imports of iron ore have grown, rising 6.8% to 714mt in the year to July 2024.
Offsetting the weakness in the property sector is the shift in investment to advanced manufacturing, with a particular focus on electric vehicles, shipbuilding and infrastructure such as solar, wind and batteries.
This will provide support for construction activity – and increase steel and iron ore prices over the next few years.
Export tariffs
In May 2024, the US announced new tariffs on Chinese steel exports, with the country increasing the tariff rate on certain steel products from 0 – 7.5% to 25% under the Section 301 tariff.
Section 301 of the Trade Act of 1974 addresses unfair trade practices and allows the President to retaliate or remove any act, policy or practice of a government that violates an international trade agreement.
“American workers continue to face unfair competition from China’s non-market overcapacity in steel and aluminium, which are among the world’s most carbon intensive,” the White House said in a statement.
“These actions will shield the US steel and aluminium industries from China’s unfair trade practices.”
Canada has also implemented a 25% tariff on the import of various steel products manufactured in China.
Looking ahead
Strong growth in global steel capacity combined with sluggish steel demand means excess capacity is a problem.
Estimates from the Organisation for Economic Co-operation and Development (OECD) indicate global steelmaking capacity is expected to continue growing rapidly over the next few years and warns excess steel capacity will become increasingly problematic over the coming years.
Between 2024 – 2026, a further 68.3mt of steel capacity will come online, with a further 88.7mt potentially being added according to announced plans by steel companies, for a total of 157mt.
South and South-East Asia (particularly India), the US, Mexico and the Middle East are expected to have the most growth, with large scale projects planned (or in progress) for these countries.
At the time of print, the iron ore price sits at $160t (US$107t).
This post was originally published on here
