Dark clouds gather over Australia's red earth riches
Spearing out of the deep-red Hammersley Range in Western Australia's Pilbara region is an 18-kilometre conveyer belt. It rumbles day and night on rollers transporting a steady flow of iron ore from a monster four-storey crusher at the area's newest open-cut mine.
Rio Tinto's $2.4 billion Western Range iron ore mine – officially opened this month – is the latest in a long line of mega-projects that have carved up the desert here for the past 60 years, sending mountains of crushed rock to the port and onto huge bulk carriers bound for steel mills in Asia.
China's voracious appetite for iron ore, the reddish dirt that's turned into steel inside giant blast furnaces, has kept the Australian economy prosperous for decades, bringing in hundreds of billions of dollars in revenue and creating the world's two most valuable miners, BHP and Rio Tinto, along the way.
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To this day, the commodity still ranks as Australia's single biggest export earner, fetching $138 billion in the past financial year alone, accounting for up to 5 per cent of the country's gross domestic product.
But demand in China is starting to cool, which is a cause of considerable concern because Chinese steelmakers are the biggest buyers of our iron ore by far. Deteriorating conditions in the Chinese property sector, which accounts for 30 per cent of its steel demand, is crunching building activity, just as US President Donald Trump's tariffs loom as another economic threat that could hinder the effectiveness of Beijing's stimulus measures.
At the same time, a wave of additional iron ore from the next generation of mines in Africa and Australia is raising the risk of an oversupply, while the declining quality of Australia's iron ore output means it will be unsuitable for less-polluting steel-making practices becoming more popular in the push to avert catastrophic global warming.
All of these headwinds are leading to one important question: could Australia's iron ore earnings powerhouse be finally facing the beginning of long and gradual structural decline?
The risk, analysts warn, is real. The fundamentals are certainly 'less constructive' than they have been in the past, says Lachlan Shaw, a mining analyst at UBS.
'The downside case for iron ore rests on a combination of supply growth from new projects including Simandou in Guinea, Onslow and Iron Bridge in WA and recovering production in Brazil,' he says.
'This, coupled with expectations for China's steel production to ease lower over coming years, results in an outlook that would, if it comes to pass, put downward pressure on iron ore prices.'
However, it's also worth remembering that the iron ore price has long defied repeated predictions it is overdue for a fall, he adds.
China's steel output has probably peaked, but this is unlikely to spell disaster. Production in China is likely to plateau at 'relatively high levels' for some time, UBS says, and demand growth in the emerging steel sectors of South-East Asia, India and the Middle East could help offset weakening conditions in China.
The development of projects to unleash new iron ore supplies may also come under pressure from higher costs and more costly and complicated approvals and heritage management processes.
'The collective market has a long history of over-confidence in forecasting iron ore's demise,' Shaw says. 'There are important offsets that may see iron ore trade stronger than the more bearish forecasts on the street.'
The slowdown in China presents the most immediate threat to demand. But a debate has also begun intensifying among the Pilbara iron ore giants about a longer-term question: could the shift to less-polluting steel-making methods which require higher grades of iron ore than Australian mines are producing hasten their demise?
'We're going to be in the Pilbara for decades. It has got a strong future if we do the work.'
Rio's head of iron ore, Simon Trott
Chinese steel mills' shift from traditional blast furnaces to cleaner processes, which use electricity instead of coal and require iron ore with fewer impurities, could turn the Pilbara into a wasteland, Andrew Forrest, the billionaire chairman of Western Australia's third-largest iron ore shipper, Fortescue Metals Group, said recently.
'They are going to shut down the old-fashioned, two-century-old technology of burning sticks and logs, putting in coal, putting in iron ore, burning it all and sending up masses of pollution into the atmosphere and producing steel,' Forrest told a mining summit in Perth. 'They're looking straight into a future that may or may not include WA.'
Analysts agree that the momentum in the industry towards cleaner steel-making processes makes the outlook for lower grade iron ore 'more challenged' relative to higher-grade products. To maintain demand for the Pilbara's mid- to low-grade iron ore, technical innovation would be required to secure their use as feedstocks for lower-carbon steel-making processes, they say.
BHP and Rio Tinto have partnered with BlueScope Steel to build an electric iron-making furnace as part of a demonstration project at Kwinana near Perth. Forrest's Fortescue is investing heavily in a push to diversify into green hydrogen as a substitute for coal in the steel-making process, and has plans to build a commercial-scale green iron plant in the Pilbara.
'Australian industry is starting to do the work here,' says Shaw. The opportunity for Australia to shift to a green iron producer and away from an iron ore miner and shipper is 'real', he adds, but will face technical and economic challenges. 'Innovation, commitment and supportive policy settings will likely be needed in combination to realise such an enormous transition,' he says.
'They are going to shut down the old-fashioned, two-century-old technology of burning sticks and logs, putting in coal, putting in iron ore, burning it all and sending up masses of pollution into the atmosphere and producing steel.'
Fortescue's Andrew Forrest
While the industry is responding to growing efforts to decarbonise the steel sector, which accounts for at least 8 per cent of global greenhouse gas emissions, Forrest's suggestion that the Pilbara is at risk of becoming a wasteland is one that Rio Tinto's head of iron ore, Simon Trott, rejects.
'We're going to be in the Pilbara for decades,' he says. 'It has got a strong future if we do the work.'
Asked to explain the progressive decline in ore quality coming out of the region, Trott says: 'You tend to start with the best bits first. That's what happened when the Pilbara got developed through the '60s, and since then, as a whole, the Pilbara has gradually declined.'
Rio Tinto says its new mines, such as Western Range, will shore up growth. The Anglo-Australian mining giant also believes it has an ace up its sleeve at its Rhodes Ridge development, which is expected to be ready by the end of this decade and contains more than 6 billion tonnes of higher grade ore.
'The good news for us is that it's in front of us rather than behind us,' says Trott.
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Rod Sims, the long-serving former chair of the Australian Competition and Consumer Commission, paints a more optimistic picture of the Pilbara's future. Where the industry sees a threat, he sees lucrative potential to create a green iron manufacturing hub for which, he says, Australia is 'superbly well positioned'.
Now chair of the Superpower Institute, a think tank he co-founded with energy expert and economist Ross Garnaut, Sims says Australia's abundant iron ore, when coupled with world-class wind and solar resources, could power a green steel export industry potentially worth $386 billion a year by 2060.
'Green iron is the next great chapter in Australia's export story,' he says. 'As the world decarbonises, our fossil fuel exports will inevitably decline – but by using our unparalleled renewable energy resources to make green iron, we can replace those exports with high value, zero carbon products that the world will need.'
One way to fulfil that vision is to use green hydrogen to replace coal in the steelmaking process, creating an emission-free product, a technology Forrest is placing big bets on. The hydrogen is sourced by splitting water into hydrogen and oxygen using electrolysis powered by fields of solar panels or wind turbines. However, the technology remains far more expensive than basic furnaces, and is not widely used yet.
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With big challenges ahead, how Australia's mining giants position themselves for the next decade will be critical. BHP and Rio Tinto are searching for new leadership talent to steer them through.
Both companies are heading into capital-intensive, construction-heavy periods with a focus on projects aimed at boosting their supplies of commodities that stand to benefit from growing global efforts to tackle global warming, such as electric battery raw material lithium, and copper, a key ingredient in electric wiring. BHP is focusing on several new and expanded copper mines, while Rio Tinto is concentrating on copper and lithium.
'Both businesses will need to pivot to a more technical, execution-driven capability within senior leadership ranks,' says Shaw. 'It will come down to the right balance of senior leaders being able to surround themselves with the technical skills and talent they need and can trust, versus potential new leadership with stronger technical experience.'
Rio Tinto chair Dominic Barton surprised investors with his disclosure three weeks ago that chief executive Jakob Stausholm will leave later this year. The miner didn't name a successor, prompting speculation the transition was hasty and a result of friction between Stausholm and Barton.
Stausholm has rejected talk of a rift. There is 'no disalignment', he told reporters at Western Range last week. 'We have completely agreed between ourselves that it is the right time to look for succession, and I will be stepping down. I am very happy and proud about my what will be five years as CEO of this company,' he said.
Any incoming boss at Rio Tinto will need to 'double down to deliver greater operational performance', Barton said, intimating the company is focusing on candidates for the top job with deep mining experience.
Change at the top of resource giant BHP has been smoother.
Former National Australia Bank chief executive Ross McEwan seamlessly took over as company chair from eight-year veteran Ken MacKenzie in March, although there are now suggestions the Big Australian is looking to replace CEO Mike Henry but no official acknowledgement.
For Shanghai-based Baowu, Rio Tinto's partner in Western Range, there is no equivocation on the Pilbara's future.
The world's largest steel producer, wholly owned by the Chinese government, is firmly rooted in the region's red earth, owning 46 per cent of the joint venture since 2002. Its chairman, Hu Wangming, describes it almost poetically as a place 'where partnership and friendship flourish, like the ore veins of the Western Range: strong, deep and everlasting'.
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It's the latest and last in a series of incremental increases from nine per cent over more than a decade since they were legislated by the Rudd-Gillard Labor government in 2012. With the latest bump, a 30-year-old earning $60,000 would have an extra $20,000 in super by retirement, according to the Association of Superannuation Funds Australia. It will add about $300 each year to the superannuation of a worker on a $60,000 salary, or $500 for someone on a $100,000 salary. "The system foundations are cemented for young, working people to have a comfortable retirement," ASFA chief executive Mary Delahunty said. "It's a moment all Australians should be proud of." The association says the cost of a comfortable retirement increased 1.6 per cent in the past year, while the cost of a modest retirement rose 1.7 per cent. A "comfortable" retirement includes top-level health insurance, a reasonable car and leisure activities. The cost of either outcome was increasing slower than Australia's current 2.4 per cent headline inflation but retiree budgets remained under pressure from rising food, energy and health costs. Couples on average need $73,900 annually for a comfortable retirement, while most singles needed $52,300 per year, ASFA says. For a modest retirement covering the basics, couples needed $48,200 each year, singles $33,400, or for renting couples, $64,250, and $46,660 each year for singles who rent. The figures underlined the importance of increasing Australia's housing stock, Ms Delahunty said. "They also illustrate how super can be the difference between hardship and stability later in life, especially for renters." For some workers, the extra contribution will come from their existing pay package, according to CPA Australia's superannuation lead Richard Webb. "It's a good idea to check with your employer to see how they view the changes and what it means for you," he said. Workers on contracts with a total remuneration package could see a slight drop in their take-home pay, while those on award or enterprise agreements would likely receive the contribution on-top of their current pay. When compulsory superannuation was introduced in 1992 - in part to reduce government spending on the Age Pension - only one in 10 Australian retirees listed super as a source of income. Nine in 10 people between 30 and 50 now have super. Government spending on the Age Pension is projected to fall from 2.3 per cent of gross domestic product in 2020 to two per cent by 2062/63, despite a doubling of the over-65 population and a trebling of over-85s over the same period. However the super guarantee increase wouldn't help those who missed out on paid work for extended periods, Super Consumer Australia chief executive Xavier O'Halloran said. "(For) people who have caring responsibilities or who have been locked out of the unaffordable housing market ... increasing SG further won't address those inequalities," he told AAP. Mr O'Halloran said there was more that could be done to support people struggling in retirement, when a significant portion of their autumnal years' savings were made. "Right now, there are no minimum standards for retirement products like there are for MySuper," he said. "There is also no performance testing of retirement products, so super funds can still sell poor products." Australian workers can look forward to a bigger nest egg, with an increase to the superannuation guarantee to add tens of thousands of dollars to the average super account. From July 1, employers' minimum required contribution to employees' superannuation accounts will rise from 11.5 per cent to 12 per cent. It's the latest and last in a series of incremental increases from nine per cent over more than a decade since they were legislated by the Rudd-Gillard Labor government in 2012. With the latest bump, a 30-year-old earning $60,000 would have an extra $20,000 in super by retirement, according to the Association of Superannuation Funds Australia. It will add about $300 each year to the superannuation of a worker on a $60,000 salary, or $500 for someone on a $100,000 salary. "The system foundations are cemented for young, working people to have a comfortable retirement," ASFA chief executive Mary Delahunty said. "It's a moment all Australians should be proud of." The association says the cost of a comfortable retirement increased 1.6 per cent in the past year, while the cost of a modest retirement rose 1.7 per cent. A "comfortable" retirement includes top-level health insurance, a reasonable car and leisure activities. The cost of either outcome was increasing slower than Australia's current 2.4 per cent headline inflation but retiree budgets remained under pressure from rising food, energy and health costs. Couples on average need $73,900 annually for a comfortable retirement, while most singles needed $52,300 per year, ASFA says. For a modest retirement covering the basics, couples needed $48,200 each year, singles $33,400, or for renting couples, $64,250, and $46,660 each year for singles who rent. The figures underlined the importance of increasing Australia's housing stock, Ms Delahunty said. "They also illustrate how super can be the difference between hardship and stability later in life, especially for renters." For some workers, the extra contribution will come from their existing pay package, according to CPA Australia's superannuation lead Richard Webb. "It's a good idea to check with your employer to see how they view the changes and what it means for you," he said. Workers on contracts with a total remuneration package could see a slight drop in their take-home pay, while those on award or enterprise agreements would likely receive the contribution on-top of their current pay. When compulsory superannuation was introduced in 1992 - in part to reduce government spending on the Age Pension - only one in 10 Australian retirees listed super as a source of income. Nine in 10 people between 30 and 50 now have super. Government spending on the Age Pension is projected to fall from 2.3 per cent of gross domestic product in 2020 to two per cent by 2062/63, despite a doubling of the over-65 population and a trebling of over-85s over the same period. However the super guarantee increase wouldn't help those who missed out on paid work for extended periods, Super Consumer Australia chief executive Xavier O'Halloran said. "(For) people who have caring responsibilities or who have been locked out of the unaffordable housing market ... increasing SG further won't address those inequalities," he told AAP. Mr O'Halloran said there was more that could be done to support people struggling in retirement, when a significant portion of their autumnal years' savings were made. "Right now, there are no minimum standards for retirement products like there are for MySuper," he said. "There is also no performance testing of retirement products, so super funds can still sell poor products."
The Advertiser
2 hours ago
- The Advertiser
EU-Aust free trade deal: a "middle finger to Trump"
There is appetite for the European Union and Australia to signal a "middle finger to Trump" by uniting on a long-awaited free trade deal but some in Brussels are tempering expectations of a quick turnaround. Trade talks kicked off in 2018 but Canberra walked away about 18 months ago over unsatisfactory market access for beef and lamb producers, and a reluctance to give up naming rights on products for geographical origin reasons, including feta, parmesan and prosecco. Fast forward to 2025 and US President Donald Trump's tariff antics have brought both parties back to the negotiating table. There was speculation of a quick conclusion with the Australian Financial Review reporting European Commission President Ursula von der Leyen had flagged a trip to Australia for late July or early August in anticipation of signing a deal. This echoed the fact she had also been quick to flag an agreement while offering Anthony Albanese her congratulations on becoming prime minister via Twitter in 2022. But multiple EU spokespeople have declined to confirm the travel, telling AAP a Down Under trip is "not on the radar". Despite acknowledging renewed political will, various sources in Brussels are cautioning patience. "There is no rush," according to one inside the EU Commission. "I wouldn't even say the end of the year, I would say more next year." Jacob Funk Kirkegaard, a senior fellow with Brussels think-tank Bruegel, estimates it could take at least another six months to resolve outstanding issues on agricultural tariffs and quotas. "The broad contour of the deal is already negotiated," he told AAP. "They know where the skeletons are buried. It takes a political grand bargain to do it." He noted that if the EU makes concessions, it would likely encounter an angry backlash from French and Polish farmers, who also opposed the EU's deal last year with Argentina, Brazil, Paraguay and Uruguay. However tractor and manure street protests wouldn't be enough to block a deal with Canberra, he said. Amid Washington's shift to extreme trade protectionism, an EU-Australian free trade deal would send a strong message to the Trump administration, Kirkegaard said. "As two of America's traditional allies, if both the EU and Australia find themselves subject to US tariffs, what better way than to do a deal with each other," he said. "So perhaps both countries feel this political signal is kind of a middle finger to Trump as well." Back in Melbourne, Sicilian-born cheesemaker Giorgio Linguanti from That's Amore Cheese faces an anxious wait to find out whether he can continue to market his wares using generic terms like parmesan or mozzarella. Yet he is open to compromise. "We should call it Australian parmesan and Australian feta because Australian milk is the best in the world," he said. Canberra and Brussels announced on Wednesday separate negotiations on a defence pact to boost defence industry, cyber-security and counter-terrorism co-operation. But it would not have military deployment obligations. There is appetite for the European Union and Australia to signal a "middle finger to Trump" by uniting on a long-awaited free trade deal but some in Brussels are tempering expectations of a quick turnaround. Trade talks kicked off in 2018 but Canberra walked away about 18 months ago over unsatisfactory market access for beef and lamb producers, and a reluctance to give up naming rights on products for geographical origin reasons, including feta, parmesan and prosecco. Fast forward to 2025 and US President Donald Trump's tariff antics have brought both parties back to the negotiating table. There was speculation of a quick conclusion with the Australian Financial Review reporting European Commission President Ursula von der Leyen had flagged a trip to Australia for late July or early August in anticipation of signing a deal. This echoed the fact she had also been quick to flag an agreement while offering Anthony Albanese her congratulations on becoming prime minister via Twitter in 2022. But multiple EU spokespeople have declined to confirm the travel, telling AAP a Down Under trip is "not on the radar". Despite acknowledging renewed political will, various sources in Brussels are cautioning patience. "There is no rush," according to one inside the EU Commission. "I wouldn't even say the end of the year, I would say more next year." Jacob Funk Kirkegaard, a senior fellow with Brussels think-tank Bruegel, estimates it could take at least another six months to resolve outstanding issues on agricultural tariffs and quotas. "The broad contour of the deal is already negotiated," he told AAP. "They know where the skeletons are buried. It takes a political grand bargain to do it." He noted that if the EU makes concessions, it would likely encounter an angry backlash from French and Polish farmers, who also opposed the EU's deal last year with Argentina, Brazil, Paraguay and Uruguay. However tractor and manure street protests wouldn't be enough to block a deal with Canberra, he said. Amid Washington's shift to extreme trade protectionism, an EU-Australian free trade deal would send a strong message to the Trump administration, Kirkegaard said. "As two of America's traditional allies, if both the EU and Australia find themselves subject to US tariffs, what better way than to do a deal with each other," he said. "So perhaps both countries feel this political signal is kind of a middle finger to Trump as well." Back in Melbourne, Sicilian-born cheesemaker Giorgio Linguanti from That's Amore Cheese faces an anxious wait to find out whether he can continue to market his wares using generic terms like parmesan or mozzarella. Yet he is open to compromise. "We should call it Australian parmesan and Australian feta because Australian milk is the best in the world," he said. Canberra and Brussels announced on Wednesday separate negotiations on a defence pact to boost defence industry, cyber-security and counter-terrorism co-operation. But it would not have military deployment obligations. There is appetite for the European Union and Australia to signal a "middle finger to Trump" by uniting on a long-awaited free trade deal but some in Brussels are tempering expectations of a quick turnaround. Trade talks kicked off in 2018 but Canberra walked away about 18 months ago over unsatisfactory market access for beef and lamb producers, and a reluctance to give up naming rights on products for geographical origin reasons, including feta, parmesan and prosecco. Fast forward to 2025 and US President Donald Trump's tariff antics have brought both parties back to the negotiating table. There was speculation of a quick conclusion with the Australian Financial Review reporting European Commission President Ursula von der Leyen had flagged a trip to Australia for late July or early August in anticipation of signing a deal. This echoed the fact she had also been quick to flag an agreement while offering Anthony Albanese her congratulations on becoming prime minister via Twitter in 2022. But multiple EU spokespeople have declined to confirm the travel, telling AAP a Down Under trip is "not on the radar". Despite acknowledging renewed political will, various sources in Brussels are cautioning patience. "There is no rush," according to one inside the EU Commission. "I wouldn't even say the end of the year, I would say more next year." Jacob Funk Kirkegaard, a senior fellow with Brussels think-tank Bruegel, estimates it could take at least another six months to resolve outstanding issues on agricultural tariffs and quotas. "The broad contour of the deal is already negotiated," he told AAP. "They know where the skeletons are buried. It takes a political grand bargain to do it." He noted that if the EU makes concessions, it would likely encounter an angry backlash from French and Polish farmers, who also opposed the EU's deal last year with Argentina, Brazil, Paraguay and Uruguay. However tractor and manure street protests wouldn't be enough to block a deal with Canberra, he said. Amid Washington's shift to extreme trade protectionism, an EU-Australian free trade deal would send a strong message to the Trump administration, Kirkegaard said. "As two of America's traditional allies, if both the EU and Australia find themselves subject to US tariffs, what better way than to do a deal with each other," he said. "So perhaps both countries feel this political signal is kind of a middle finger to Trump as well." Back in Melbourne, Sicilian-born cheesemaker Giorgio Linguanti from That's Amore Cheese faces an anxious wait to find out whether he can continue to market his wares using generic terms like parmesan or mozzarella. Yet he is open to compromise. "We should call it Australian parmesan and Australian feta because Australian milk is the best in the world," he said. Canberra and Brussels announced on Wednesday separate negotiations on a defence pact to boost defence industry, cyber-security and counter-terrorism co-operation. But it would not have military deployment obligations. There is appetite for the European Union and Australia to signal a "middle finger to Trump" by uniting on a long-awaited free trade deal but some in Brussels are tempering expectations of a quick turnaround. Trade talks kicked off in 2018 but Canberra walked away about 18 months ago over unsatisfactory market access for beef and lamb producers, and a reluctance to give up naming rights on products for geographical origin reasons, including feta, parmesan and prosecco. Fast forward to 2025 and US President Donald Trump's tariff antics have brought both parties back to the negotiating table. There was speculation of a quick conclusion with the Australian Financial Review reporting European Commission President Ursula von der Leyen had flagged a trip to Australia for late July or early August in anticipation of signing a deal. This echoed the fact she had also been quick to flag an agreement while offering Anthony Albanese her congratulations on becoming prime minister via Twitter in 2022. But multiple EU spokespeople have declined to confirm the travel, telling AAP a Down Under trip is "not on the radar". Despite acknowledging renewed political will, various sources in Brussels are cautioning patience. "There is no rush," according to one inside the EU Commission. "I wouldn't even say the end of the year, I would say more next year." Jacob Funk Kirkegaard, a senior fellow with Brussels think-tank Bruegel, estimates it could take at least another six months to resolve outstanding issues on agricultural tariffs and quotas. "The broad contour of the deal is already negotiated," he told AAP. "They know where the skeletons are buried. It takes a political grand bargain to do it." He noted that if the EU makes concessions, it would likely encounter an angry backlash from French and Polish farmers, who also opposed the EU's deal last year with Argentina, Brazil, Paraguay and Uruguay. However tractor and manure street protests wouldn't be enough to block a deal with Canberra, he said. Amid Washington's shift to extreme trade protectionism, an EU-Australian free trade deal would send a strong message to the Trump administration, Kirkegaard said. "As two of America's traditional allies, if both the EU and Australia find themselves subject to US tariffs, what better way than to do a deal with each other," he said. "So perhaps both countries feel this political signal is kind of a middle finger to Trump as well." Back in Melbourne, Sicilian-born cheesemaker Giorgio Linguanti from That's Amore Cheese faces an anxious wait to find out whether he can continue to market his wares using generic terms like parmesan or mozzarella. Yet he is open to compromise. "We should call it Australian parmesan and Australian feta because Australian milk is the best in the world," he said. Canberra and Brussels announced on Wednesday separate negotiations on a defence pact to boost defence industry, cyber-security and counter-terrorism co-operation. But it would not have military deployment obligations.
