For twenty years, China’s property boom made iron ore king. Skyscrapers, subways and highways turned BHP, Rio Tinto and Vale into the world’s most powerful miners. Beijing had no choice but to pay in US dollars, follow London based annual Platts benchmark prices, and swallow whatever contract terms the Pilbara pushed their way.
That era’s over. Three big shifts have flipped the script:
1️⃣ The steel binge is finished
China’s property machine has cooled from the peak. Beijing has put a hard cap on steel output through to 2026. Renewables and electric cars still need steel, but nowhere near the volumes that went into tower blocks and high-speed rail.
2️⃣ New supply is on the way
The giant Simandou mine in Guinea Chinese-funded and pegged to ship in yuan kicks off this year. At full tilt it could add about 10% to global trade. On top of that, China is blending its own lower-grade ore with imports and stockpiling ahead of holidays. The message? The mills can ride out a short boycott without breaking a sweat.
3️⃣ Electric arcs change the game ⚡
And here’s the real back-breaker for BHP: China’s steel industry is rewiring itself.
- EAFs (Electric-Arc Furnaces) now make up more than 15% of China’s steel capacity, up from 9% in 2020, with Beijing targeting 30% by 2030.
- EAFs don’t need the high-grade Pilbara lumps; they can run on lower-grade fines upgraded into DRI (Direct Reduced Iron) pellets.
- Plants in Tangshan and Hebei are already producing millions of tonnes of DRI from domestic ore and gas at costs competitive with imported scrap.
💰 Why that kills the Pilbara premium
- Blast furnaces consume 1.65 t of 62% ore to make 1 t hot metal.
- EAF + DRI needs only 1.35 t of 67% pellets, which can be made from lower-grade concentrate plus binder and gas.
- Every 10 Mt/year shift to EAF-DRI cuts ~3 Mt of seaborne 62% demand. Scale up to China’s 200 Mt/year growth plan and you’ve effectively removed a whole Pilbara hub (Area C or Yandi) from the market.
🔑 The GG Shot
China no longer needs high-grade, dollar-priced Australian ore the way it once did. It can:
- Substitute with Simandou 65% Fe (yuan-priced),
- Dilute with domestic 55% Fe concentrate, and
- Upgrade the rest via DRI-EAF into “green steel.”
The Pilbara premium is being engineered out and electric-arc furnaces are the crucible where BHP’s former leverage is melted down.
