Australia’s huge iron ore mining sector is going through stark decisions as its greatest buyer China has seemingly hit a peak in its metal manufacturing and international pressures mount to decarbonise one the world’s most polluting industries.
The scale of those challenges are huge, however not insurmountable, and there are an array of choices that Australia’s iron ore miners can pursue.
The trick is selecting a path that maximises income, and minimises prices, whereas making certain the business continues to prosper.
Australia is the world’s largest exporter of iron ore, the important thing uncooked materials used to make metal, and it shipped about 930 million metric tons in 2023, which at present costs could be price about $93 billion.
Australia can be the world’s largest exporter of metallurgical coal, used to make metal, ranks second in thermal coal and in liquefied pure gasoline, whereas additionally being the most important exporter of lithium and largest internet exporter of gold.
But the exports of all these commodities collectively barely exceed the worth of iron ore shipments, underscoring the outsized function of the ore, which is especially produced within the state of Western Australia.
More than 80% of iron ore exports are to China, which buys 70% of the worldwide seaborne volumes and produces about half of the world’s complete metal.
Putting these numbers collectively offers an image of a dominant producer and a dominant purchaser within the iron ore market.
China’s rise because the late 90s allowed Australia’s iron ore miners to massively ramp up output, reap economies of scale and turn into massively worthwhile.
But the character of each China’s demand and the method of constructing metal are more likely to change quickly, threatening the present mannequin whereby Australia produces huge portions of iron ore that’s changed into metal in blast furnaces and fundamental oxygen furnaces, processes that require the usage of coking coal.
China’s metal output has flattened prior to now 5 years to round 1 billion ton each year, and most analysts presenting at this week’s Global Iron Ore and Steel Outlook Conference in Perth predicted that manufacturing will steadily decline within the subsequent few years.
This is partly as a result of China’s infrastructure and housing building will ease, but additionally as a result of China will more and more use scrap metal in electrical arc furnaces to provide new metal merchandise.
While Australia’s iron ore miners might be able to offset the lack of a few of China’s demand by promoting to newer metal producers in Southeast Asia, it’s seemingly that the general marketplace for iron ore will quickly decline.
It’s additionally more likely to change in composition, with greater grades of iron ore most popular as these may be extra simply used as a feedstock together with scrap in electrical arc furnaces.
Higher grades of iron ore also can simply be upgraded into direct discount iron (DRI), which in flip may be changed into metal with out utilizing coal.
Making metal utilizing DRI produced with inexperienced hydrogen and renewable vitality is a method the business is pondering of decreasing carbon emissions.
Even utilizing pure gasoline to make DRI can cut back emissions by as much as 75%.
The drawback is DRI is hard to export given it may be risky, so it tends to be made on the similar location because the metal furnaces.
So, if Australia’s iron ore miners want to transfer up the metal worth chain, they’d should discover methods to provide DRI and switch it into metal in Australia, utilizing renewable vitality.
Another path is upgrading the iron ore into sizzling briquetted iron (HBI), which is an upgraded type of DRI, whereby the DRI is transformed right into a compact kind utilizing warmth.
HBI may be shipped, and can be utilized in both an electrical arc furnace or a fundamental oxygen unit.
Should Australia’s iron ore miners transfer to improve their product, they’ll want vital funding, and there’s no certainty that the upgraded merchandise will ship sufficiently greater margins.
For instance, if an iron ore miner agreed with its prospects in China, Japan and South Korea to produce HBI as an alternative of iron ore fines, this is able to require vital funding in a clear vitality system.
The iron ore miners have been profitable in working advanced operations at low prices, however organising a wind/solar energy crops, a inexperienced hydrogen electrolyser and probably battery storage as effectively could be a completely totally different problem.
There can be the opportunity of exporting iron ore to a 3rd nation for processing into HBI, with Gulf international locations akin to Saudi Arabia a possible vacation spot.
These international locations have massive portions of pure gasoline which might be used to show iron ore into HBI in a course of that may nonetheless be extra environmentally pleasant than utilizing coking coal.
The HBI may then be shipped from the Middle East to prospects in Asia.
However, there are a number of different elements that may come into play, akin to metal nationalism.
Many international locations see metal as a key commodity and wish to retain their very own industries. It’s unlikely Japan would wish to purchase inexperienced metal from Australia, but it surely is likely to be ready to purchase HBI and preserve the ultimate course of of constructing metal inside its borders.
The drawback for Australia’s iron ore sector is that it has a plethora of choices in adjusting to decarbonisation and peak metal in China.
But all contain dangers and prices, and that is bother for an business that has spent the final decade de-risking itself and concentrating on bettering shareholder returns.
