By Rhiannon Hoyle 

SYDNEY--A run-up in the price of iron ore to a decade high is blunting China's pressure tactics in a major trade dispute.

China imposed a series of import restrictions and tariffs on Australian products including barley and beef last year, after being angered by Australian Prime Minister Scott Morrison's call for an international investigation into the first outbreak of Covid-19 in China. But its reliance on iron ore from Australia meant the steelmaking ingredient wasn't targeted by Beijing.

Now, China's demand for iron ore to feed its steel mills and underpin its economic recovery has driven the industry's benchmark price to its highest level since February 2011. That is providing a revenue boost to Australia, which accounts for more than 50% of global iron-ore exports, as it navigates tensions with its largest trade partner.

The price of iron ore--one of the world's most traded commodities--rose to $187.75 a metric ton on April 20, according to S&P Global Platts. It has risen 17% over the past month, extending a rally that began when prices were below $100 a ton less than a year ago.

"It's certainly good news for miners and the Australian economy," said AMP Capital Chief Economist Shane Oliver. He predicted more large trade surpluses for Australia, while iron-ore miners will pay more in tax that will improve Australia's budget deficit.

The surge in iron-ore prices has been underpinned by stronger steel prices in China after Beijing last year ramped up stimulus spending with a focus on infrastructure. Steel prices, also around decade highs, have been encouraging mills to churn out more of the material to meet demand from industries including construction and automobiles.

"China's industrial economy continues with strong momentum," Rio Tinto PLC said Tuesday when detailing its performance in the first three months of this year.

China is estimated to have produced 83 million tons of crude steel in February, up 11% year over year, according to latest data from the World Steel Association. March data are due to be published on Thursday.

"I suspect steel producers are making hay while the sun shines," said Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group Ltd.

In 2011, when prices were last this high, China's rapid economic growth created a shortfall in iron-ore supplies, which encouraged miners from Australia to Brazil to expand their operations. Iron ore peaked at $193 a ton in February of that year.

On Monday, Brazilian miner Vale reported a first-quarter production result that missed analyst expectations, fanning fears of a shortage

BHP Group Ltd. on Wednesday said its annual iron-ore output is likely to be at the upper end of a forecast range--245 million to 255 million tons--aided by record production at its Jimblebar mine in Australia. The world's No. 1 miner by market value reported a 4% increase in iron-ore output for the first nine months of its fiscal year through June, to 188.3 million tons.

Rio Tinto this week said its first-quarter iron-ore shipments from Australia were 7% higher than the same period of 2020, as it ran down stockpiles of the commodity.

China was the destination for 38.1 million tons, or more than 80%, of iron ore shipped in March from northern Australia's Port Hedland, the world's biggest iron-ore export hub, according to the Pilbara Ports Authority. That was up from 30.7 million tons in February, but below the 40.4 million tons shipped in March 2020.

Australia expects strong prices to push its earnings from iron-ore exports to a record above 136 billion Australian dollars, equivalent to $105 billion, in the year through June, the government said in a recent report. That would beat the previous high of A$104 billion in the 12 months through June, 2020.

"Iron ore is Australia's single biggest export and swamps the value of coal and agricultural exports, so its continuing price surge to levels well above most analysts' expectations will see further upgrades to mining-company profit growth for this year, where the consensus expectation is already for a 70% rise in profits this financial year," AMP Capital's Mr. Oliver said.

Many analysts think iron-ore prices could soon buckle. Goldman Sachs predicts the price to retreat to $110 a ton by the fourth quarter of this year, and to below $100 a ton in 2022, reflecting expectations that Brazil will lift exports and create an oversupply of the raw material from the second half of this year.

Record prices also typically lead high-cost, low-grade mines to restart production.

Still, strong Chinese steel demand and wide margins among steelmakers will limit any retreat in prices in the near term, Goldman Sachs said.

"There will be a level where steel producers will start to push back, and it could be close," ANZ's Mr. Hynes said. "But I've been surprised in the past."

Write to Rhiannon Hoyle at


(END) Dow Jones Newswires

April 21, 2021 06:16 ET (10:16 GMT)

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