- Iron ore market in limbo as China blocks BHP cargoes
- But analysts think the situation will be temporary
- Price drops below US$100/t could require significant shifts in iron ore supply and demand
Iron ore has taken a hit this week, ever so slightly, falling to US$103.30/t on Friday morning after a recent surge to +US$106/t.
The irony of iron ore’s recent rise has been that China has been making efforts to clamp down on steel overcapacity. With its property market on the fritz, the world’s manufacturing powerhouse and producer of more than half of its crude steel has faced demand side concerns for around four years.
Much of that demand has swung to new industries like renewables and EVs, with non-property demand now making up over 70% of China’s domestic steel end uses.
And record exports have also propped up the sector.
But it stands to reason that the world’s top consumer of iron ore, the end of a conveyor belt running from mines in the Pilbara and Brazil, thinks it may be paying too much for the stuff.
Those feelings have come to a head with news out of Bloomberg and Reuters that BHP (ASX:BHP), the world’s biggest miner and third largest iron ore exporter, has had sales to Chinese steel mills stalled by China Mineral Resources Group, an organisation set up a few years ago as a broker to wrestle price setting power away from the major miners.
The impact of the news is hard to ascertain. BHP shares initially took a dive, but it’s not considered material enough to tell the ASX about and they rebounded slightly this morning to a narrow five-day gain. Iron ore prices are relatively steady with Chinese mills well stocked ahead of a public holiday that will continue until Wednesday.
According to shipping industry sources, The Australian reported, ships continue to leave Port Hedland as scheduled and BHP claims to have had no formal notification from CMRG or Chinese authorities on an official ban on its products.
It comes after earlier reports that steel mills had been told not to purchase product from BHP’s Jimblebar mine.
What of the iron ore price?
There are a few things going on that may give China a whip hand when it comes to price negotiations.
For one, China is expected to record its biggest drop in crude steel production since Covid, dipping below 1Bt to around 980Mt. Output has, effectively, plateaued since 2020.
At the same time, the large Simandou mine in Guinea is expected to open in November, though deaths in the construction of the multi-billion dollar project have blighted it, the latest the deaths of three foreign nationals on the northern blocks owned by China’s Winning Consortium.
The other two blocks are owned by a group including Rio Tinto (ASX:RIO), a Chinalco-led consortium including China’s top steelmaker Baowu and the Guinean government.
But analysts remain sceptical the latest ructions could see iron ore prices fall off a cliff.
BHP has maintained in recent years that a dip in output from Vale after the Brumadinho dam disaster in 2019 changed the make-up of the iron ore market, bringing a large volume of marginal tonnes into the market that exit when prices fall below US$100/t.
Commbank’s Vivek Dhar noted large reductions in Chinese steel output would be needed to really hammer prices.
“These estimates suggest that iron ore prices will average $US100/t, $US90/t and $US80/t if China’s steel output sustainably falls 1‑2%/yr, 6‑7%/yr and 10%/yr respectively,” he said.
“These estimates assumes that iron ore supply is unchanged. With China’s steel production falling just 0.7%/yr last month, the case for $US100/t in the near term is plausible.”
Chinese crude steel output fell 2.8% on the year for the first eight months of 2025, Dhar said. But the future of iron ore prices will depend on a multitude of factors ranging from anti-involution tactics to stimulus measures.
“A renewed push to lower China’s steel output in Q4 2025 will have the effect of pushing physical iron ore demand lower and ultimately weigh on iron ore prices,” he said.
“We think policymakers will look to reduce nationwide steel output by 2‑3% this year, which aligns with iron ore price support levels of $US95‑100/t. But this estimate is contested and remains a key uncertainty to keep watching.”
Irreplaceable like Beyoncé
RBC’s Kaan Peker, meanwhile, suggested BHP’s supply into China remained “structurally irreplaceable”.
“Ultimately, if prolonged, the ban risks squeezing steel margins or forcing selective output cuts (& higher steel prices with ripple effects into construction costs, autos and infra), but China cannot realistically walk away from BHP supply altogether,” he said in a note.
“55-65% of BHP’s iron ore sales are to China (RBCe 290Mt in FY26), this equates to roughly 160-190Mt of iron ore to China (~16% of Chinese imports). This would suggest 11% of China’s steel output would be at risk (or 110-115Mt). Hence, we view BHP’s iron ore supply as structurally irreplaceable.”
Separately, RBC has an outperform rating and price target of $41 on fellow iron ore miner Mineral Resources (ASX:MIN), with Peker issuing a positive note on its moves to reduce near term debt via the completion of a refinancing of US$700m senior unsecured notes.
Peker said the announcement indicated “positive perception/investor confidence” in MIN’s creditworthiness.
“Over the next 12-24 months we believe the strategy is clear – ramp up Onslow, prioritise the balance sheet, reduce capex, operate the asset for cashflow. Outperform,” Peker told clients.
The ASX 300 Metals and Mining index rose 3.45% over the past week.
Which ASX 300 Resources stocks have impressed and depressed?
Making gains
Westgold Resources (ASX:WGX) (gold) +29.6%
Vulcan Energy Resources (ASX:VUL) (lithium) +19.8%
Ora Banda (ASX:OBM) (gold) +15.4%
IperionX (ASX:IPX) (titanium) +14.8%
Eating losses
FireFly Metals (ASX:FFM) (copper) -3.4%
Develop Global (ASX:DVP) (copper/zinc) -2%
PMet Resources (ASX:PMT) (lithium) -1.7%
Mineral Resources (ASX:MIN) (iron ore/lithium) -1.6%
Westgold was the big winner, storming higher after releasing a three-year outlook which plotted a growth pathway from 326,000oz last financial year to 470,000ozpa from FY28, with its key initiative a planned expansion of the Higginsville plant that mills ore from the Beta Hunt gold mine in WA’s southern Goldfields.
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