Too much of a good thing

The writing is on the wall for boom-time iron ore prices as production is ramped up and new mines are opened

- GAURAV SODHI

When the first shipment of iron ore left the Pilbara for Japan in 1966, it was the culmination of an impossible venture. In 1953, Lang Hancock had sensationally claimed to have found the world’s largest iron deposit from the air.

The story goes that he was flying to Perth with his wife and was forced to fly below the clouds because of bad weather. Following a gorge, he noticed the shimmering red iron through the rain, and saw it was endless.

Few believed that a bulk mining operation could be launched from scratch in the middle of the Pilbara. It took nothing less than the industrialisation of Japan, and more than a decade of construction, before Rio Tinto achieved the feat.

For the next 40 years, the price of iron ore remained flat, staying between $US20-30 a tonne. Then, in 2004, everything changed. In that year, the iron ore price jumped 76%, signalling the start of the great commodities boom and the awakening of the Chinese economic juggernaut.

Chinese iron ore imports rose from 70 million tonnes per annum (mtpa) in 2000 to almost 700mtpa a decade later. China came from nowhere to dominate the global iron ore trade. Today, it accounts for almost 60% of demand.

To accommodate such a hungry new customer, iron ore markets have spent 20 years adjusting.

Australia’s iron ore production has risen from 170mtpa in 2000 to about 900mtpa in 2021. In Brazil, home of the Carajas iron ore basin, output grew from 200mtpa to 400mtpa last year, although Brazilian output peaked at over 450mtpa prior to the Vale tailings dam collapse in 2019.