June 2018

Iron ore spotlight

  • By Cameron Scott

The iron ore sector employs a significant number of Australia’s resources professionals. There are over 50 000 people employed in the Western Australian iron ore industry alone, and in AusIMM’s 2017 Professional Employment Survey, nearly 15 per cent of respondents worked in the iron ore sector.

Properties

Iron ore is the term given to a mineral substance that bears iron in sufficient concentrations to be commercially exploitable. Iron ore yields metallic iron (Fe) when heated in the presence of a reductant.

The principle iron ores are made of hematite and magnetite. Hematite ranges in colour from silver to reddish brown, is non-magnetic and contains 69.9 per cent Fe. High-grade hematite makes up approximately 96 per cent of Australia’s iron ore exports, most of which comes from the Hamersley province of Western Australia (WA). High-grade hematite ore is known as direct shipping ore because it needs minimal processing before export.

Magnetite is generally black in colour and is highly magnetic. It contains 72.4 per cent Fe but has more impurities than Hematite, making it a less economical raw material for steel production. Australia has an emerging magnetite industry focused in the Pilbara region of WA. Once mined, magnetite goes through lengthier processing, exploiting its magnetic properties to produce a concentrate.

Iron ore and steel

98 per cent of the world’s iron ore is used to produce steel, a mainstay in industry across the globe. Although steel has been produced in various forms since ancient times, British inventor Henry Bessemer found a way to mass produce steel in the 1850s. Since that time, steel has become indispensable for modern society, and is used in a wide variety of applications from household appliances to skyscrapers.

Steel is an iron-base alloy with a small amount of carbon. In typical steel alloys, carbon content is between 0.05 per cent and 1.25 per cent by weight. Steel typically also contains manganese and trace amounts of phosphorus, silicon and sulphur. Varying the amount of carbon and other alloying metals allows for control over certain qualities of the final product, such as hardness. Stainless steel, for example, is a steel alloy with a minimum 10.5 per cent chromium content by mass.

Steel is an umbrella term for over 3500 combinations of iron and alloys which all have different chemical properties.

Western Australia dominates iron ore production

WA holds 89 per cent of Australia’s iron ore Economic Demonstrated Resource (EDR), with South Australia making up ten percent and the rest of Australia sharing the remaining one per cent. Australia has the world’s largest iron ore EDR with 51 545 Mt, constituting 28 per cent – double the amount of the next highest, Russia, at 14 per cent. WA alone is the world’s largest iron ore producer and exporter in the world, with the Pilbara making up 94 per cent of Australia’s iron ore exports in 2016.

WA’s iron ore industry has expanded rapidly in the past decade. In the 2005-06 period, WA’s iron ore contributed six per cent to the state’s gross product but tripled to 18 per cent in the 2016-17 period. A detailed look at the WA iron ore industry is available on page 50.

Australian iron ore on the world stage

Australia is the world’s largest exporter of iron ore, with 767 Mt in 2015, followed by Brazil with 366 Mt. In 2010, iron ore overtook coal as Australia’s most valuable export. Metallurgical coal is another key component of steel processing, with most of Australia’s exported to Japan, India, South Korea and China. As Australia has no local steel industry, 85-90 per cent of its iron ore is exported, mainly to China, which accounted for 82 per cent of iron ore exports in 2016. The remainder goes to Japan, Korea and Taiwan.

The iron ore price was an average of US$68 a tonne in the first quarter of 2018 but the price is forecast to fall to US$55 a tonne in the final quarter, as Brazil ramps up its own exports.

Trade with China

In the 2016-17 period, Australian iron ore exports to China were worth $52 657 million. Australia has substantial history of selling iron ore to China, beginning in 1973, just one year after establishing diplomatic relations. The first Chinese investment in Australia was the Channar Iron Ore Joint Venture in the Pilbara in 1987.

China makes about half of the world’s raw steel and exports nearly 100 Mt worldwide every year. Chinese iron ore reserves have a relatively low iron content – about 33 per cent – which makes it more expensive to process. Because of this, China relies mostly on imported iron ore for its steel production. China’s demand for iron ore has profound effects on its price – iron ore averaged US$129 a tonne between 2008 and 2014 but with lower demand from China fell drastically between 2014 and 2016 before a moderate increase in 2016-17, which brought the price up to US$70 a tonne.

China recently announced a structural overhaul of its steel industry with plans to reduce crude steel output by 150 Mt per annum by 2020. This is part of a broader effort to streamline the sector after years of falling steel prices by eliminating unnecessary steel production capacity.

According to a report on China’s steel reforms from the Development Bank of Singapore, the reforms are likely to drive consumption of imported iron ore as large integrated steel mills are encouraged to produce high-grade steel products. BHP Chief Commercial Officer Arnoud Balhuizen said in a release on the company’s website that the Chinese reforms will likely benefit suppliers of high quality raw materials.


This article is part of our June 2018 special feature on iron ore. Read more:

The importance of iron ore to Western Australia’s economy

Iron ore – meeting market challenges

How the ‘tyranny of distance’ affects the Australian economy


References

Department of Foreign Affairs and Trade, Australia’s Top 10 Goods & Services Exports, 2016, http://dfat.gov.au/trade/resources/trade-at-a-glance/Pages/top-goods-services.aspx

Department of Industry, Innovation and Science, Resources and Energy Quarterly March 2018, https://industry.gov.au/Office-of-the-Chief-Economist/Publications/ResourcesandEnergyQuarterlyMarch2018/documents/Resources-and-Energy-Quarterly-March-2018.pdf

https://www.industry.gov.au/resource/Mining/AustralianMineralCommodities/Pages/IronOre.aspx

US Geological Survey, Iron Ore Statistics and Information, https://minerals.usgs.gov/minerals/pubs/commodity/iron_ore/

World Steel Association, 2018. About steel [online]. Available from: www.worldsteel.org/about-steel.html.

https://www.bhp.com/media-and-insights/prospects/2018/05/iron-ore-met-coal-and-chinas-steel-reforms

Image: Edward Haylon/Shutterstock.com.

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