Australia’s iron ore miners face falling Chinese demand

Australia’s iron ore miners face falling Chinese demand

Subject: Geography

Sec: Eco geo

Context: Australia’s vast iron ore mining sector is facing stark choices as its biggest customer China has likely hit a peak in its steel production and global pressures mount to decarbonise one the world’s most polluting industries.

Details:

• Australia is the world’s largest exporter of iron ore, the key raw material used to make steel, and it shipped about 930 million metric tons in 2023, which at current prices would be worth about $93 billion.
• Australia is also the world’s largest exporter of metallurgical coal, used to make steel, ranks second in thermal coal and in liquefied natural gas, while also being the biggest exporter of lithium and largest net exporter of gold.

Why exports falling?

• China’s steel output has flattened in the past five years to around 1 billion ton per annum, and most analysts presenting at this week’s Global Iron Ore and Steel Outlook Conference in Perth predicted that production will gradually decline in the next few years.
• This is partly because China’s infrastructure and housing construction will ease, but also because China will increasingly use scrap steel in electric arc furnaces to produce new steel products

What is the future of Australia Iron Ore industry?

• It’s also likely to change in composition, with higher grades of iron ore preferred as these can be more easily used as a feedstock along with scrap in electric arc furnaces.
• Higher grades of iron ore can also easily be upgraded into direct reduction iron (DRI), which in turn can be turned into steel without using coal.
• Making steel using DRI produced with green hydrogen and renewable energy is one way the industry is thinking of reducing carbon emissions.
• Even using natural gas to make DRI can reduce emissions by up to 75%.
• The problem is DRI is tricky to export given it can be volatile, so it tends to be made at the same location as the steel furnaces.
• So, if Australia’s iron ore miners wish to move up the steel value chain, they would must find ways to produce DRI and turn it into steel in Australia, using renewable energy.

Other Option:

• Another path is upgrading the iron ore into hot briquetted iron (HBI), which is an upgraded form of DRI, whereby the DRI is converted into a compact form using heat.
• HBI can be shipped, and can be used in either an electric arc furnace or a basic oxygen unit.

Challenges

• Need significant investment
• No certainty that the upgraded products will deliver sufficiently higher margins.