Why Did China Suspend Purchase of Australian BHP’s Iron Ore?
As negotiations between China Mineral Resources Group (CMRG) and BHP stalled, it would appeared that Chinese orders of Australian iron ore from BHP may have been suspended, although no Chinese official has yet come out to confirm the situation. In 2022, CMRG was created by the Chinese government to consolidate procurement of iron ore for the strategic steel industry, while BHP is one of the largest iron ore producers in the world, or simply one of the largest miners globally.
According to Bloomberg reports, the Chinese government instructed CMRG to suspend the procurement of iron ore from BHP at the start of September 2025. By the end of September, it would appear that China has stopped all purchase orders to BHP.
The transaction was significant enough for Australian PM Anthony Albanese had to come out and voice concerns officially and publicly. Australian Treasurer Jim Chalmers then had a chat with BHP CEO Mike Henry to explore the way forward. The stock market did not seemed overly concerned as BHP share price only took a slight dip on the unconfirmed reports.
From 2020-2021, China and Australia did have a trade dispute over Australia accusing China of being the originator of #COVID19. At that time, China officially suspended all imports of Australian wine, coal, and barley.
Iron ore matters more than all the above Australian products combined and accounts for nearly 60% of all of Australia’s exports to China and brought in more than USD 100 billion annually to the Australian economy every year. In the good old days, Australia annual production of iron ore reached nearly one billion tonnes and nearly 80% went to China.
Previously, the iron ore market was a sellers’ market with BHP, Rio Tinto and Vale dictating the price. Each mill had to negotiate an allocation from the top three and were considered lucky to get a share even at a high price.
China Iron and Steel Association tried to regroup procurement in the past but the lack of solidarity among buyers derailed the initiative. Now, it seems the Chinese government has decided to take the bull by the horns and exert its weight fully in the negotiations.
BHP alone supplies 13% of China’s needs for iron ore, which is difficult to replace within a short timeframe. Over the past few years, China has invested billions of dollars into the Simandou iron ore mine in Guinea which has started production with optimistic estimates putting annual tonnage at 120 million.
Other analysts believe that the iron ore and steel is nearing the end of a cycle where prices were buoyed by brisk construction in the real estate sector in China. Now that the real estate bubble has burst, it is thus normal for prices to periclitate as demand dips. In that situation, China simply does not need that much iron ore any more and some analysts believe that iron ore price will settle between $50-80/tonne compared to its record high of over USD 200 just a few years ago.
Throwing complexity into the global iron ore market mix, the industry is moving toward #GreenSteel. As opposed to traditional steel made from coal-powered furnace with substantial emissions, Green Steel is manufactured with renewable energy or green hydrogen (GH2) instead. It would thus be interesting to see how the iron and steel industry evolves in the future as a tipping point emerges on the horizon.