Anthony Albanese’s mission to defend Australia’s $100b iron ore trade with China
It’s the $100bn question: for how much longer will China keep buying mountains of Australian iron ore?
It’s the $100bn question: for how much longer will China keep buying mountains of Australian iron ore?
The stakes are enormous. Last year, Australia’s iron ore sales to China made up one-fifth of the country’s total exports to the world ($105bn of $517bn), according to DFAT trade data.
The iron ore trade alone made up almost 60 per cent of Australia’s $179bn exports to China in 2024. The trade is the main reason China is as lucrative as our next five biggest customers combined: Japan, South Korea, India, the US and Taiwan. Aside from LNG ($21bn in 2024), coal ($13bn) and lithium ($5bn), all other Australian goods exports to China are relative pocket change.
John Kunkel, former chief of staff to the previous prime minister Scott Morrison, told The Australian: “There’s only one commodity that Treasury worries about in terms of its capacity to move the dial in a positive or negative direction.
“Iron ore just dominates,” said Dr Kunkel, who is now a senior economics adviser at the US Studies Centre and previously worked as head of Australian government relations for Rio Tinto.
So it is a relief Anthony Albanese will not have to spend much of his second trip to China as Australia’s Prime Minister waving around lobsters and, as on his debut trip in 2023, asking President Xi Jinping if China’s customs department would allow them into the country again.
Bigger than lobsters
Now the diplomatic work of getting China to lift its $20bn of trade black-listing is done, the Prime Minister and his government have a new task, one that will have far more impact on the nation’s future wealth: making sure Australian iron ore continues to be the biggest ingredient in China’s mega steel industry.
The Prime Minister will get onto the task early in Shanghai, the first stop on his six-night China trip. On Monday, Mr Albanese will oversee a roundtable that will include representation from Australia’s three biggest iron ore miners – Fortescue founder Andrew Forrest, BHP’s Australian president Geraldine Slattery and Rio Tinto chief executive Kellie Parker – along with senior leadership from China’s biggest steel maker Baowu and many of China’s other steel giants.
Their focus will be on green iron, which is iron made with renewable energy sources such as green hydrogen instead of the coking-coal-intensive smelting process. The Albanese government announced a $1bn green iron investment fund earlier in the year.
David Olsson, national president of the Australia China Business Council, said Chinese policymakers and steelmakers are serious about decarbonising the steel sector “because they have to be”.
“Steel accounts for a significant share of China’s emissions, and Beijing has made it clear that lowering the carbon intensity of heavy industry is central to meeting its 2030 and 2060 climate targets,” Olsson told The Australian.
“The global steel transition will happen with or without us. The fact that Australia’s major iron ore producers are joining the Prime Minister’s delegation is a clear sign they intend to lead,” he said.
Mr Forrest, the Fortescue billionaire, has been Australia’s loudest green iron champion. China has been paying attention and last June Chinese Premier Li Qiang visited Fortescue’s Hazelmere Prototype Facility during the Perth leg of his Australian visit.
“There is not a snowflake’s chance in hell that they are not going to send their cities green with blue skies,” Mr Forrest said recently of the Chinese government. “They’re looking straight at a future which may or may not include Western Australia.”
Mr Xi did not speak as starkly this week during a site visit to Shanxi, China’s coal heartland, but he did make clear to local officials that they had to kick their thermal coal addiction.
“While Shanxi has prospered, it has also been trapped by coal,” the President told officials, according to a report that ran off much of the front of Thursday’s People’s Daily, the official paper of the Chinese Communist Party.
Mining coking coal, the ingredient for steel making, and the province’s steel industry were both judged sound by China’s leader, according to the People’s Daily report. Green iron was not mentioned, nor was China’s 2060 net-zero emissions target.
However, the party’s general secretary signalled change was coming for all China’s heavy industry. “Firmness means to identify the direction of progress and move forward unswervingly,” he instructed his Shanxi comrades.
Next-gen plants
China’s steel sector has already undergone more than a decade of change.
Ten years ago, the air pollution in China’s steel capital Tangshan was so bad that pilots routinely could not land at the city’s airport. “They couldn’t find the runway,” one official said.
Back in 2015, Australia sold $38.9bn worth of iron ore to China, much of it being unloaded at the port near Tangshan and transported to the industrial city’s steel factories and others across Hebei province. That was back in a time people in China dubbed the “airpocalypse”. Tangshan, just under an hour and a half on the fast train from Beijing, was ground zero of that public health emergency, with its multitude of steel factories and other heavy industry the chief pollutants.
I was surprised to see some blue sky in the city when my fast train arrived from Beijing. My air quality app said it was “lightly polluted”, with an AQI of 148, and I could smell a whiff of sulphur, but it was not the nightmarish place I had seen in photos. The next day, the air was even better, getting a “good” rating, with an AQI of 60. What has happened?
Partly, the weather was fortuitous, but it was more than that.
In the past decade, Chinese state-owned steel companies have invested tens of billions of dollars in new-generation steel plants.
Unlike generations ago, they are not built near the centre of Tangshan city but an hour’s drive away at Caofeidian Port and its gargantuan heavy-industry precinct, all built on reclaimed land.
Technological advances mean these factories release less pollutants — although you can still see a fair bit wafting out of their chimney stacks. The government’s description of the nearby Caofeidian residential area as an “ecocity” seems ambitious and a huge of stock of unfinished towers and offices suggest many Chinese haven’t felt the pull to relocate.
Meanwhile, Tangshan city and the Hebei provincial government have overseen the closure of the oldest, most polluting factories. The same pattern has happened across China as the Communist Party has fought, with considerable success, to follow what were becoming increasingly angry demands for cleaner air.
A modest decline — for now
China’s new steelmaking fleet is producing even more than it was a decade ago. Steel output has grown from an already enormous 800 million tonnes to its preposterously high current plateau of 1000 million tonnes — half the world’s total production.
To the relief of Canberra, and the puzzlement of even senior mining executives, output has continued at that level since 2020, despite the historic slump of China’s property industry, once the main user of the metal.
As the share consumed by China’s property sector has slumped from above 40 per cent to less than 20 per cent, the use in machinery has surged to fill up much of the difference. State infrastructure projects, including the roll of ubiquitous power lines and grids, have also grown as end users.
Still, leaders in China’s state-owned and guided steel industry have been frank that business has not been good and things need to change.
Chen Yuqian, deputy secretary general of the China Iron and Steel Industry Association, said recently: “The industry cannot repeatedly fall into the vicious cycle of ‘more production, more losses.”
However, Australia’s Treasury, which has been cushioned for decades by the large profits from our mining giants, will be relieved at the current prescription: incremental reductions in China’s national output.
Production will fall by only 2 per cent to 986 million tonnes in 2025, according to the Chinese government-supported Metallurgical Industry Planning Institute.
Australia’s $100bn iron ore trade looks safe for another year at least.
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