For over five decades, the remote Pilbara region of Western Australia has been a key part of the nation’s economy, shipping large quantities of iron ore mainly to China. Mining Minister Madeleine King recently stated that iron ore remains “the bedrock of Australia’s prosperity and the thread that connects us to the global economy.” This strong resource trade has fueled the growth of mining companies like Rio Tinto, which co-owns the new Western Range mine with China Baowu and BHP. They have enabled the annual export of hundreds of millions of tonnes, making a significant contribution to the nation’s Gross Domestic Product. The price of this commodity is so important that it can affect the country’s yearly federal budget forecasts.
However, the strong confidence in the Pilbara’s future is now facing serious structural and cyclical pressures. The market has experienced considerable volatility in iron ore prices due to ongoing issues in the Chinese property sector. Government data shows that Chinese steel production fell by 4.6 percent year over year in September, with domestic consumption down by 5.8 percent. At the same time, Beijing is trying to reduce price risks. The state-backed China Mineral Resources Group (CMRG), formed three years ago to strengthen purchasing power, has recently begun to have more influence in negotiations with major suppliers like BHP.
On top of these immediate market changes, there is a significant long-term threat from global decarbonization efforts. The steel industry accounts for about eight percent of global emissions, pushing for greener and less carbon-intensive production methods. Asian steelmakers, including Baowu and Mitsui, have set net-zero targets for 2050. A major concern for the Pilbara is that its lower-grade ore is less compatible with the new smelting technologies needed to replace traditional coal-fired blast furnaces. Billionaire Andrew Forrest, chair of Fortescue, has issued a strong warning, stressing that Australian producers must change or risk losing their market relevance.
This need for change is highlighted by the coming competition from the Simandou mine in Guinea. Simandou, under the control of Rio Tinto and a Chinese consortium, produces iron ore of a significantly higher quality, precisely what modern steelmakers require. Some observers have ominously called Simandou, which is set to officially open in November, a “Pilbara killer.” However, its expected output is still small compared to Western Australia’s capacity. Simandou plans to produce 60 million tonnes annually by 2028, with the potential for 150 million tonnes. Yet, the projected output is just a small fraction of the 866 million tonnes Western Australia exported last year.
Despite these new challenges, major players are showing a clear commitment to the region. Simon Trott, before becoming Rio’s chief executive, dismissed fears of the Pilbara turning into a “Mad Max-style wasteland.” He affirmed that the company plans to invest over A$20 billion ($13 billion) in the region over the next five years. This commitment was strengthened in October with the announcement of a A$1.1 billion expansion of its West Angelas mine, in partnership with Japanese stakeholders Mitsui and Nippon Steel.
However, a noticeable sense of caution remains. BHP, which produced 290 million tonnes of Pilbara ore last year, has lowered its long-held growth target to 330 million tonnes. The company is now redirecting its capital spending towards commodities like copper and potash. CEO Mike Henry stated that, with Simandou coming online and Chinese steel production leveling off, the need for further growth investment has decreased. This signals a more careful market outlook.
In light of this changing landscape, many industry and policy leaders are calling for a national strategy. They want to use Australia’s abundant renewable energy to produce higher-value “green steel” domestically. Guy Debelle, a former Reserve Bank deputy governor, warned that Australia risks losing its market position to competing regions if it doesn’t take the opportunity for change. State and federal governments, along with private companies, are supporting a pilot electric smelting furnace in Western Australia to find ways to use lower-grade Pilbara ore in modern steel production. Furthermore, Fortescue has set up a “green energy hub” in the Pilbara to test hydrogen-powered electric furnace technologies.
However, the industry have varied opinions on how much transition is needed. Geraldine Slattery, BHP’s head of Australia, argued that making steel in Australia costs twice as much as in China or the Middle East. She believes Australia’s best approach is to become a leader in upstream production rather than shifting to manufacturing. Ultimately, as Fiona Haslam-McKenzie from the University of Western Australia pointed out, the historical advantage of Pilbara iron ore was its low extraction cost. Given the changing global demands and economic pressures, experts now think the country must actively seek new growth opportunities, even if the initial returns are not as attractive, to adjust to what she called a “post-iron ore world.”
