Iron ore prices falling as China’s restrictions on steel production continue to bite and economic growth slows

Anglo-Australian miner BHP expects China will be needing less iron ore in the coming months

Australian miners are likely to see reduced profits, but there are currently no signs of risks to the iron ore trade with China

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Australia exports the most iron ore to China. Photo: Reuters

Published: 4:30am, 18 Aug 2021Updated: 4:30am, 18 Aug 2021

Anglo-Australian miner BHP has signalled that the heydays of extraordinary iron ore prices could be near their end amid China’s slowing steel production and its latest coronavirus outbreak.

On Tuesday, the miner posted strong financial-year earnings on the back of high iron ore and copper prices just as iron ore prices dipped to near US$160 a tonne after striking a record high price of US$230 a tonne in May.

“Medium-term, China’s demand for iron ore is expected to be lower than it is today, as crude steel production plateaus and the scrap-to-steel ratio rises,” the miner said in its outlook on commodities.

The iron ore trade is one of the few gems in the China-Australia relationship untouched by their political and trade conflict that heated up in April 2020 when Canberra called for an international probe into the origin of the coronavirus without diplomatically consulting Beijing.

Australian miners BHP, Rio Tinto and Fortescue Metals Group are the biggest exporters of iron ore to China.

The meteoric rise of iron ore prices has buttressed an otherwise tumultuous relationship between the two countries, but now prices have started to fall as a series of factors – including curbed steel output in China, the impact of a recent coronavirus outbreak and a strong drive by Beijing to cut carbon emissions – start to take hold.

Australian miners will feel the sting of reduced profits, but there are no signs of risks to the trade with China thus far. Analyses show that, despite the fall in prices, the bottom lines of miners and the Australian government – to whom miners pay royalties and taxes on their exports – will still be in the black.