China’s NDRC has demanded that domestic iron ore producers and end users boost domestic exploration for the steel-making feed, diversify iron ore of imports, and explore overseas ore resources. Meanwhile, China‘s Ministry of Industry and Information Technology (MIIT) also released a five-year plan to achieve a target of 45% iron ore self-sufficiency by 2025. This includes ~20% from China’s oversea assets, up from a current level of 8%, and another 25% from increased domestic production.

China’s Domestic Production

China produced around 245Mt of iron ore in 2020, up of 3% from the previous year, and is expected to produce 250Mt this year. However, AME forecasts that China domestic iron ore supply will gradually decrease over the long term due to reserve limitation and environmental issues, despite the NDRC encouraging domestic iron ore producers and end users to boost domestic exploration.

Chinese iron ore demand is expected to hit a new record in 2021, growing around 4.8% to approximately 1,541Mt. AME estimates that pig iron production will still dominate steel production and iron ore demand will only decline slightly by 2025 to 1,446Mt. With a domestic supply level of only 200–250Mt, China will need to import around ~1,250Mtpa over the medium-term.

Who Will Supply Iron Ore to China?

China’s iron ore imports totalled 1,170Mt in 2020, up 9.3% on-year, and were predominantly filled by Australia (61% in 2020), followed by Brazil (20%), South Africa (4%) and India (3.8%). Australia is by far the dominant supplier of the country's iron ore imports.

Australia

Australia, the world’s largest producer of iron ore, remains at the forefront of new iron ore developments. AME forecasts that Australia will supply 906Mt iron ore bound to the global export market in 2021. As BHP’s 80Mtpa South Flank iron ore in Western Australia has achieved first iron ore production in May and Fortescue Metals Group’s 22Mtpa Iron Bridge project is planned to begin operations in December 2022, Australia’s dominance over the international market is set to continue. The country will retain its market share of 37.3% through 2025, with 932Mt of iron ore produced for the global export market. AME expects Australia to maintain its position as the world’s largest supplier of iron ore over the long-term.

Brazil

Brazilian supply to grow as Vale continues to recover from the twin impacts of Covid and tailings dam decommissioning. AME expects South America's biggest economy will produce 392Mt this year. With Vale increasing production capacity from the Carajas complex, as well as other projects in pipeline, such as Amapa mine and BAMIN, AME estimates that Brazil will supply 471Mt iron ore by 2025, accounting for 19.2% of global supply, up by 2.6% in 2021.

India

India's iron ore production was beset by twin problems in 2020. Output was hit by the pandemic and the change of ownership of producing iron ore mines in Odisha, which led to a 14% on-year drop to 207Mt. However, India's production but will bounce back strongly to 252Mt in 2021 and up to 297Mt by 2025. The National Steel Policy aims to build a globally competitive industry by 2030–2031 with crude steel capacity of 300Mt, production of 255Mt. Therefore, AME estimates that India iron ore demand will increase to 273Mt in 2025, up from 170Mt in 2021.

However, recent surges in iron ore exports from India has made domestic steel producers miserable, as they grapple with shortages. During the first four months of 2021, India exported 22.4Mt of iron ore, an increase of 66% on-year, of which ~90% (20.3Mt) was sent to China, compared with 12.2Mt in the same period last year. Steelmakers in India have called for an iron ore export ban as the shortage cause a spike in iron ore prices, but the government has yet to take any steps. Therefore, India’s supply will be limited in the near term.

South Africa

South Africa’s iron ore industry is globally competitive as given its high-quality product and favourable geographical position to major export markets. For production growth, South Africa will require all necessary logistics infrastructure in place, security of energy and water, and a suitable regulatory environment. AME estimates that South Africa’s iron ore supply will be stable at ~70Mtpa during the short to medium term.

Rest of World

Given the increasingly tense relationship between China and Australia, the MIIT expects that China will reduce the dependence on the country and strengthen co-operation with iron ore miners in Russia, Myanmar, Kazakhstan and Mongolia. Moreover, China is exploring African projects in Algeria, Congo and Guinea but these projects will be taken several years to reach operation. However, Russia is not traditional iron ore supplier to China, and we can see that its production increase will be up by 5Mt to 105Mt in 2025.

On the other hand, the Simandou project in Guinea has promised so much for so long, and the current Chinese backed consortium seems set to finally deliver. Early works on rail infrastructure is expected to start this quarter, which is the most expensive and complicated part of the project. As a result of this positive movement, AME expects that the project will see first exports in 2027.

Medium-Term Expectations

AME expects Australia to remain the dominant supplier of iron ore to China over the medium term due to stable supply and its favourable location compared to Brazil and South Africa. Moreover, increased iron ore production from Brazil cannot support the breadth of Chinese demand even as Beijing tries to import higher amounts from it to cajole Australia. India can also supply limited iron ore to China over the medium term as it tries to lift its own steel output. Looking at greenfield projects in Africa, AME does not see any significant supply in the medium term.