Who controls the iron ore market?
The partial lifting of the Federal Government’s iron ore export ban in November 1960 transformed a remote corner of WA into the backbone of Australia’s export economy.
The industrialisation of Japan during the 1960s incentivised iron ore developers to explore WA’s remote Pilbara. The region’s proximity to Asia allowed production to expand rapidly, surpassing 100mtpa by the 1980s, according to the Minerals Council of Australia (MCA).
Continued industrial growth in Taiwan and South Korea throughout the 1970s and into the 1980s further accelerated demand, driving Pilbara exports beyond 200mtpa by the early 2000s.
China’s manufacturing and industrialisation efforts grew rapidly in the early 2000s and initiated the Pilbara’s major 21st-century mining boom. China’s industrialisation led to Australian iron ore exports reaching astronomical highs of more than 800mtpa by 2016, according to the MCA.
The Pilbara region now provides nearly half of the world’s seaborne iron ore supply, according to Pilbara Ports.
Though Pilbara miners have been pivotal to China’s rise to economic dominance, tensions between the stakeholders are tumultuous.
Negotiations and China’s leverage
Due to the strong domestic demand for steel, underpinned by rapid industrialisation and infrastructure growth, China remains the world’s largest steel producer and consumer.
According to the Reserve Bank of Australia, favourable government policies, significant government investment and the relocation of global steel production to developing countries, like China, have all contributed to the country’s market dominance.
In the last 40 years, closed-door negotiations between the small number of miners and steelmakers, which dominate both spot and contract markets, have determined iron ore prices.
Purchase prices were traditionally determined in annual benchmark negotiations between leading iron ore producers and importers. By 2004, China had become the world’s largest iron ore consumer. In the same year, Baosteel emerged as a lead negotiator representing Chinese importers before China Iron and Steel Association (CISA) began to take over in 2009.
Chinese importers have long been trying to control market fluctuations. After producers and Chinese buyers failed to reach a benchmark agreement in 2009, BHP continued to push for more transparent, market-linked pricing mechanisms.
In July 2009, BHP said it had agreed to sell 30% of its total ore volumes through a combination of quarterly negotiated prices, spot-market prices and index-based pricing. An additional 23% was settled under annual contract terms, while negotiations over the remaining volumes continued.
By 2010, BHP announced that most of its Asian sales had moved from annual contracts to index-based quarterly pricing.
Vale and Rio Tinto (ASX: RIO) followed closely behind BHP and, in the same year, also broke the tradition of annual benchmark pricing in favour of shorter-term pricing.
However, as markets rebounded and prices began to climb, this new dynamic left China at the whim of volatile pricing, with the index price representing a 99.7% increase on the price previously determined during initial negotiations.
More than a decade later, the Chinese Government established CMRG in 2022 to centralise iron ore procurement and improve China’s pricing power in the global market.
Today, China buys more than 1bt of iron ore per year and state-controlled CMRG is now the world’s biggest trader, according to GMK Centre.
Pilbara producers targeted
Australia’s iron ore majors have generally resisted efforts to abandon internationally recognised pricing mechanisms, arguing that transparent benchmark pricing provides stability for both producers and customers.
In early September 2025, CMRG halted the purchase of BHP’s Jimblebar blend fines as part of ongoing negotiations with the miner over the annual buying contract for 2026. CMRG was seeking to agree on a new price-setting mechanism, but BHP reportedly rejected the term.
Later that month, CMRG escalated the dispute further by telling major steelmakers and traders to temporarily halt purchases of all new BHP cargoes, reportedly asking domestic buyers to suspend purchases of any dollar-denominated seaborne cargoes from BHP.
Despite the ongoing standoff, BHP reported record material mined at its WA Iron Ore (WAIO) operations and a 5% year-on-year increase in lump sales in Q1 FY26.
However, things were further escalated when the reported restrictions were extended to Jinbao fines in November 2025 and Newman fines in March 2026.
It wasn’t until April 2026 that China began to relax its restrictions, with CMRG reportedly allowing several steel mills to purchase some BHP seaborne cargoes and accept delivery of previously restricted products.
Finally, in late April, BHP confirmed that it had concluded price talks with CMRG.
Despite the prolonged negotiations, BHP posted solid metrics for both iron ore production and price for FY26. WAIO produced a record 291.2mt on a 100% basis at an average realised price of US$84.56/wmt, up 3% from the year prior.
BHP has not been Australia’s only producer affected by CMRG’s negotiation tactics.
In July, CMRG asked some domestic steel mills not to take delivery of certain portside iron ore products from Fortescue, Reuters reported.
According to reports, CMRG is seeking greater price concessions while also asking Fortescue to maintain certain discounts it had offered to plants once purchases were redirected via the state-owned company to other consumer enterprises.
Reuters reported that CMRG notified some mills verbally that from July 15 they must not take delivery of portside cargoes of Fortescue’s Super Special Fines and Fortune Fines, both of which are lower-grade iron ore products.
Lower-grade ores require more energy-intensive steelmaking processes, making pricing and product quality increasingly important considerations as China pursues emissions reductions.
According to Reuters, CMRG encouraged major steelmakers to question the product’s characteristics as part of broader discussions over long-term supply agreements.
Bloomberg subsequently reported that CMRG had been coordinating efforts with traders, steel mills and port operators to delay Fortescue’s shipments, restrict certain products and prevent new purchases.
Fortescue declined to comment.
Pressure extends beyond mining
As Australia has deepened its strategic alignment with the US and regional partners, economic relations with Beijing have become increasingly intertwined with broader national security considerations.
Trade has remained resilient despite periods of diplomatic tension, but both governments have become acutely aware of the vulnerabilities created by their economic interdependence.
For China, reducing exposure to foreign suppliers of critical raw materials has become a key strategic objective. For Australia, maintaining reliable access to its largest export market while preserving an open market-based trading system has become equally important.
Iron ore sits at the intersection of economics and national strategy, with China and Australia’s mutual dependence creating a relationship characterised by both cooperation and competition.
Unlike many other commodities, there are few realistic alternatives to Australia’s vast, high-quality reserves.
Diversification has become a central pillar of China’s supply-diversification strategy. China’s investment in upcoming iron ore giant Simandou could be considered the country’s most significant attempt at advancing this strategy.
Simandou has the potential to be one of the most significant iron ore mines outside of Australia, reducing China’s reliance on Australian exports.
With the first shipment from Simandou arriving in China in January this year, the operation is now ramping up toward a planned production capacity of 120mtpa.
However, the project remains years from reaching full production capacity and requires significant investment to develop the infrastructure required to reach that production. The political instability of Guinea and logistical complexity are also other challenges China will have to overcome.
Brazil remains Australia’s principal seaborne iron ore competitor. However, Brazil’s distance from Asian markets means the challenges of longer shipping times and higher freight costs limit its competitiveness.
While China is Australia’s largest customer, China also depends heavily on Australia’s reliable supply. Any prolonged disruption could force Chinese steelmakers to rely heavily on lower-quality domestic ore or imports from Brazil and other emerging producers facing logistical and political constraints.
