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How will Australia’s new government affect iron ore?

06:57, 25 May 2022

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Iron ore being transported from a mine to processing units
Australia accounts for about 49% of global iron ore exports – Photo: Shutterstock

In 2011, Australian iron ore production amounted to about 477 million metric tonnes. A decade later, however, that figure doubled. The land of the kangaroos is also the world’s largest iron ore exporter, responsible for the lion’s share of the world’s total output – about 49%, the majority of which goes to China.

However, Australia just elected Anthony Albanese, a new Labor prime minister, to replace a conservative coalition government that had been in power for more than a decade. Rumours of a coalition with the Australian Greens, a left-wing party, are swirling, generating substantial political turmoil in the mineral-rich country.

What could this policy shift in Australia mean for the iron ore market? 

Iron ore prices retreated from a three-week high

How important is Australia to iron ore?

Australia has traditionally been very rich in mineral resources, with the likes of iron ore, copper and gold in abundance, especially in the Western Australia region. This has led to a number of companies such as Rio Tinto (RIOgb) and BHP (BHP) setting up base in Australia, in order to better facilitate the production and export of their mining output.

Iron ore is a major resource for the country and is a highly valued export, with the metal being key to producing steel. As such, the metal’s price movements affect the Australian dollar as well. Currently, China is Australia’s biggest importer, accounting for about 75% of global iron ore consumption.

However, with China dealing with a fresh wave of Covid-19 cases and increased lockdowns in its industrial and manufacturing hubs, iron ore prices have been fluctuating lately, leading to calls for Australia to reduce its dependence on the metal and ramp up its other exports.

How will the new Australian government impact iron ore?

With the election of the new government, there is increased pressure for climate change goals to be met. With Australia responsible for so much mining annually, but also being home to rich biodiversity, a balance needs to be struck by miners in order to prevent the destruction of the country’s ecosystem.

The new government has already promised that it will significantly ramp up the monitoring of local borders, in order to discourage the spread of Covid-19. This move has gained the support of key voters in Western Australia, which controls the majority of mining, as it will go a long way in helping mines operate smoothly without closures and delays due to Covid-19.

Climate change goals, and more specifically the failure to meet them, have been an ongoing issue in Australia, and were a major reason for the exit of at least three earlier prime ministers, including Scott Morrison. In that spirit, the new government has also pledged to accelerate the phasing-out of coal mining, in a continued effort to preserve the environment.

Iron ore may thus also see tighter measures which align with environmental goals soon. This may lead to new mining companies being hesitant to invest in Australia, at least in the short term, leading to decreased supply and a potential hike in prices.

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As of the end of May 2022, iron ore is trading at about $132 per tonne, retreating slightly from three-week highs of about $135 per tonne seen recently.

Which other countries might step in?

Brazil is the world’s second largest exporter of iron ore, responsible for about 21% of total annual global exports, followed by South Africa with about 6%, Canada with about 4% and Ukraine with almost 3%, according to the Atlas of Economic Complexity.

With the Russia-Ukraine war still ongoing, iron ore supplies from Ukraine have obviously been disrupted considerably, along with supply chain issues getting much worse. This has led to the metal touching record highs recently.

With things still unclear about the way the new Australian government will handle mining and commodities, and consumers looking at a transition period as well, in the short term Brazil or South Africa may step up to claim part of Australia’s iron ore export share.

This is increasingly likely, as Australia’s iron ore output and exports have already been lagging behind in recent times, leading to a boost in prices. However, if other countries step in soon, this price hike may eventually be balanced out

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