By Nick Toscano
Mining giant Rio Tinto has warned China’s crisis-stricken property market poses an ongoing threat to Australia’s most valuable export, iron ore, after prices for the critical steel-making material took a big hit in 2024.
The world’s second-largest miner, which makes most of its money from digging up iron ore in Western Australia and selling it to China, told investors on Thursday that benchmark prices for the commodity had slipped 8 per cent in the three months to December to an average of $US103 ($166) a tonne.
The recovery of China’s property sector is crucial for Australia’s economy.Credit: Getty
Years of booming demand from Chinese steel mills, which process iron ore in giant steel-making furnaces to churn out molten pig iron, have delivered huge profits for Australia’s three biggest miners – BHP, Rio Tinto and Fortescue.
Sales of Australian iron ore raked in more than $130 billion in national revenue during 2023-24, cementing its position as Australia’s biggest export earner.
But weakening economic activity in China over the past 12 months and deteriorating conditions in its construction sector, which accounts for 30 per cent of its steel demand, have triggered a slowdown with significant implications for Australian government coffers.
Since the start of 2024, iron prices have now lost more than a quarter of their value, having fallen from around $US140 a tonne.
In its latest official forecasts, the federal government now expects Australia’s overall iron ore export earnings to fall by about $30 billion this financial year – from $138 billion to $108 billion – before easing to $96 billion in 2025-26.
On Thursday, Rio Tinto said it was seeing “mixed signals” in the Chinese economy.
“It still faces headwinds from a property market oversupply,” the miner said.
The Chinese government has so far struggled to counter the downturn plaguing its property market through stimulus measures. Analysts from investment bank UBS have flagged that “testing times” appear likely to continue for Australian miners in 2025 amid uncertainties surrounding incoming US president Donald Trump’s plans to hike tariffs that could crimp global growth, and the effectiveness of Chinese stimulus measures.
Analysts from Goldman Sachs have warned iron ore prices could take a knock if global growth suffers under higher inflation.Credit: Getty
However, Rio Tinto on Thursday pointed to November data on home sales and prices as possible “signs of stabilisation”, as well as improving demand from China’s manufacturing and consumer sectors on the back of subsidy support.
RBC Capital Markets analysts Kaan Peker and Ben Davis described the company’s update as a “good finish to the year”, noting that production targets had been reaffirmed.
Rio Tinto also said it was on track to bring its long-awaited Simandou iron ore project in Africa’s Guinea into production later this year, unleashing more supplies that could increase stockpiles and add pressure to prices.
The Rio Tinto-backed Simandou project is believed to have some of the world’s richest iron ore deposits, but its development has been delayed for years amid disputes over infrastructure funding and various interventions from Guinea’s military junta, which seized power in a coup in 2021.
Analysts predict Guinea’s Simandou region may one day rival the iron ore volumes of WA’s Pilbara, while China is increasingly looking to Simandou as a way to lessen its reliance on Australian supplies.
Elsewhere in Rio Tinto’s global portfolio, the company is continuing to push harder to diversify away from iron ore and into other commodities that stand to benefit from growing global efforts to tackle global warming, such as electric battery raw material lithium, and copper, a key ingredient in electric wiring.
The mining giant on Thursday revealed it had boosted copper production by 13 per cent last year, largely due to the boost of its massive Oyu Tolgoi mine in Mongolia, and higher production from Chile’s Escondida.
Rio Tinto chief executive Jakob Stausholm said the miner was making “strong progress” in delivering growth from its major projects.
“The Oyu Tolgoi underground copper mine in Mongolia continues to successfully ramp up, while the Simandou high-grade iron ore project in Guinea and our Western Range mine in the Pilbara are on schedule for first production this year,” he said.
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