Iron ore is Australia's most valuable export, but China's economic data suggests that's changing

Australia Broadcast Center

4 hours ago

Australia's most valuable export, iron ore, is getting much less valuable as a continued slowdown in Chinese economic activity and strong production from Pilbara and overseas mines work to keep prices flat.
Futures contracts for iron ore traded on the Singapore Exchange dropped below $94 for the first time since September last year, after economic data from China on Monday showed lower steel output from Chinese mills.
Chinese steel production dropped by 6.9 per cent to 86.55 million tonnes in May, following directives from officials to cut production.
While the market is not oversupplied yet, ANZ senior commodities analyst Daniel Hynes said iron ore prices aren't expected to lift over the short term.
"The fundamentals suggest we're not swimming in a wave of iron at the moment," he said.
"So the upper sort of levels that prices can reach are clearly not going to be as high as we've seen in the past."
Analysts at S&P Global also pointed to negative market sentiment caused by the trade tensions between the US and China as a source of weakness in the iron ore price in June.
Last year, Rio Tinto's iron ore chief executive Simon Trott said China had reached its peak of steel demand.
Beyond the peak, there are few signs of hope that anything will replace the voracious demand for steel the residential construction sector had.
"Patches of growing demand from energy transition and manufacturing have not been enough to cover up the property slack, and the billion-tonne steel industry is edging toward another shake-up as barbed wires emerge across most trade borders," said Isha Chaudhary, Wood Mackenzie's global head of steel, raw materials and metals.
In addition to lower demand, CBA mining and energy economist Vivek Dhar said increasing supply will also weigh on prices.
Rio Tinto recently opened its Western Range mine in Paraburdoo, in partnership with China's Baowu Steel Company, which has the capacity to produce 25 million tonnes of iron ore a year.
"Brazil 's Vale is adding supply by 2026," Mr Dhar said.
"BHP and Rio Tinto have flagged that they're going to add more tonnes as they squeeze more production out of their rail and port assets.
"But I think the biggest supply increase is going to come from African supply and in particular Guinea with the Simandou project."
The impact of the Simandou project in Guinea is being closely watched by Australia's iron ore industry.
The Rio Tinto project, in partnership with the Aluminum Corporation of China (Chalco) is the largest untapped high-grade iron ore reserve in the world.
Its supply of 64 per cent Fe ore is expected to hit the market at the end of the year.
At the same time, Platt and Fastmarkets will re-jig their price indices for Australian iron ore from 62 per cent Fe to 61 per cent Fe, to reflect the lower grade of ore coming from the Pilbara.
Recently, Fortescue founder Andrew Forrest told the AFR's Mining Conference that the Pilbara was at risk of becoming a wasteland as Chinese steel mills adopted electric arc furnaces that work better with higher-grade iron ore.
But Rio Tinto CEO Jakob Stalsholm remains fully confident in the Pilbara as a global supplier of iron ore.
"The Pilbara, in aggregate, is the main fuel engine of iron ore for the world, and particularly towards China, and it will be in the future," he said at the opening of the Western Range mine.
"It is for us as companies to make sure that the Pilbara ore remains relevant, and how do we do that? We do that in partnership with companies like Baowu, working on how can we decarbonise the supply chain."
Mr Dhar said the attractiveness of Simandou's iron ore for green steel making was overplayed.
"Even from Simandou, in terms of the current processes to produce green steel, it is still a challenge at 64 per cent Fe.
"And so it's not a slam dunk that it's going to be that enormous threat that people talk about to Australian ore."