Leverage in the Australia-China iron ore trade

This article appeared in the East Asia Forum Quarterly, vol. 18, no. 1, January - March 2026. 

The November 2025 launch of the Chinese-invested Simandou iron ore mine in Guinea, West Africa pricked a long-standing anxiety in Australia—whether China’s past dependence on Australian iron ore is waning and whether Beijing might now be able to extract geopolitical concessions by threatening Australia’s economic security.

But viewing Simandou’s market entry as a turning point is misguided and risks leading policymakers astray. While impacting the global iron ore market at the margins, the evidence points to Australia remaining resistant to economic coercion on this account.

The real vulnerabilities facing Australia lie elsewhere—an over-securitised approach to economic engagement with China, an unravelling of the US-led international trading system and domestic factors such as stagnant productivity growth.

In the early 2020s, Beijing might have scratched an emotional itch by disrupting around a dozen Australian exports to punish Canberra over political differences. But because, among other things, Australia remained an essential supplier of big-ticket items like iron ore, the move backfired.

What has changed now is that Simandou will potentially add up to 120 million tonnes of iron ore per annum to global supply. China’s steel production has also flatlined. This led Chinese commentator Kai Xue to contend that ‘With supply rising and demand falling, someone will inevitably be pushed out and that someone is likely to be the Pilbara region of Western Australia. The reason is geopolitical’.

While such a warning might be eye-catching, it overstates both Simandou’s scale and any newfound leverage that Beijing has acquired. The simple opening of a new Chinese-invested mine is hardly cause for alarm.

New mines are required to maintain current supply as existing operations elsewhere are depleted. And Chinese investment is not just growing Guinea’s industry. In 2022, Shanghai-headquartered Baowu agreed to become a joint venture partner with Rio Tinto in the new Pilbara-based Western Range mine that opened in June 2025.

Ownership structures further complicate notions of Simandou as a geopolitical weapon. The entire project is owned by two consortiums, SimFer and Winning Consortium Simandou (WCS), each holding a 42.5 per cent share and manage different mining tenements. The Guinean government holds the remaining 15 per cent. 

The largest shareholder in the SimFer consortium is Rio Tinto. While Chinese interests hold a combined majority of WCS, these are split across two different legal entities. In the largest of these, a Singaporean company’s stake is on par with its Chinese joint venture partner.

None of these mine owners—Chinese or otherwise—have an incentive to deliberately undercut their own returns by collapsing global iron ore prices. Nor do they possess the market power to do so.

By the end of 2027, Guinea is expected to supply global markets with 40–50 million tonnes of iron ore, double that in 2025. In comparison, Australia will supply 934 million tonnes and Brazil 427 million tonnes.

On the demand side, China is expected to import almost 1.2 billion tonnes. From January–November 2025, China imported over 1.1 billion tonnes, an increase of 1.4 per cent year-on-year.

For China, Australia will remain an essential supplier.

By the end of 2027, Australian iron ore is still expected to fetch just over US$80 per tonne. Even if Simandou’s entry does cause a sharper fall in prices, business fundamentals strongly favour Australia. 

Despite any premium Simandou’s marginally higher quality ores attracts, its cost base is significantly higher than major Pilbara producers’ at an estimated US$55–60 per tonne—even before accounting for longer shipping distances to China. 

Sharply lower prices would also increase China’s import dependence. Chinese domestic suppliers, which currently account for around 300 million tonnes of the country’s needs, are the world’s highest cost producers and so are most vulnerable to having their margins destroyed. 

Even in terms of the threat to Australian government coffers, the risks are modest. Australian Treasury estimates suggest that a US$10 per tonne fall in iron ore prices in 2025–26 would reduce Commonwealth revenues by up to AU$2.1 billion (US$1.4 billion) in 2028–29. But the overall budget position already assumes a conservative benchmark price of US$60 per tonne—with US$1.4 billion equating to just 0.25 per cent of expected revenue.

Australia’s economic security is not meaningfully undermined by Simandou. But a real risk facing Australia lies in how it manages its economic engagement with China. 

Canberra has long welcomed Chinese investment in the iron ore industry, not only to supplement domestic capital, but also as a credible signal to Beijing that regardless of strategic differences, economic security in the steel supply chain was a shared objective best served by very high levels of interdependence. 

Like iron ore, China is also Australia’s largest market for critical minerals like lithium and rare earths. Yet Canberra has shunned Chinese investment in the sector since 2020, seeing it only as a potential threat to greater supply chain resilience. This is despite examples such as Australia now bolstering the global supply of processed critical minerals like lithium hydroxide precisely because it approved Chinese investment in the 2010s.

Another risk lies in the rupture of the rules-based trading system. Aside from China needing Australia for big-ticket items like iron ore, Beijing’s disruptive trade measures in the early 2020s were blunted by local producers having access to open and competitive global markets, underpinned by the WTO, which provided both countries an exit ramp. 

These days, the same system helps to defend Australia’s economic security from threats emanating from the United States.

Australia’s high-level interdependence—or deep complementarity—in the iron ore trade with China strengthens its hand in keeping China’s feet to the torch on its multilateral rhetoric and credentials. It thus makes no sense to discourage China in its ambition to acceding to regional trade blocs like the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) so long as it commits to a credible pathway to meeting its high standards. 

Australia and China are already bilateral free trade agreement partners and fellow members of the Regional Comprehensive Economic Partnership and the WTO. US accession to CPTPP should also be supported if Washington is ever so inclined. These are all arrangements that help constrain China to a multilateral course.

More significantly, Australia’s deepest economic security vulnerabilities are domestic. Productivity growth has run into the sand, posing a more serious threat to Australia’s long-term income growth, fiscal capacity and economic resilience than any new iron ore mine in West Africa. 

Australia’s huge iron ore trade with China leaves Australia’s economic security very much in Canberra’s hands, not Beijing’s.