What will be the outcome of the China-Australia iron ore game? What are the spillover effects?

The China-Australia iron ore game has gone beyond the bilateral trade scope, reshaping the global mineral pricing mechanism, shipping routes, resource country fiscal models, and currency settlement patterns; in the short term, market volatility is increasing, while in the long term, the era of "dollar + Platts" dominance is gradually fading away, with diversified pricing and supply chain dispersion becoming the new normal in the iron ore market.

The China-Australia iron ore game has not reached its end yet, but a "China stopping purchases to pressure, Australia verbally cooling down" stage has already emerged. The final probability is likely to lead to a new balance of "increased RMB settlement ratio + Chinese price reference mechanism embedded," marking a new phase where global iron ore pricing power moves from "seller's absolute monopoly" into a "co-creation by both buyer and seller."

I. As of now (October 2025), the latest game between China and Australia over iron ore pricing power shows a "China taking the initiative, Australia responding passively" stage. It can be summarized as follows:

1. China's rare "purchase stoppage" pressure

On September 30, China Minmetals Resources Group (CMRG) required domestic steel mills and traders to completely suspend the purchase of any BHP seaborne iron ore priced in U.S. dollars, including goods already loaded and en route; only a small amount of RMB-priced spot remained in the port for trading. This is the most severe "targeted sanction" by China against Australian iron ore in three years, directly triggering a 7% drop in BHP's stock price during the session, and forcing Australian Prime Minister Albanese to publicly express "disappointment" and hope for a "quick resolution."

2. The surface contradiction is "U.S. dollar pricing + high premium", the underlying demand is to seize pricing power

China proposed two core conditions:

- To use RMB for settlement, promoting the proportion of RMB in commodity settlements;

- To establish a more stable and close-to-spot "Chinese price" mechanism, weakening the influence of overseas quotation systems such as Platts Index.

BHP insists on U.S. dollar pricing and maintaining a long-term agreement premium of over $100 per ton. After multiple rounds of negotiations failed, China chose to "trade quantity for price" to escalate the game.

3. Australia was briefly shocked in the short term, but there is limited alternative supply space

Iron ore accounts for about one-third of Australia's export revenue, and 75% or more of the output of BHP, Rio Tinto, and FMG is sold to China. If the stoppage range expands, the federal government's revenue, Western Australia's budget, and local pension dividends will be significantly affected. However, 75% of global seaborne iron ore flows to China, and Brazil and West Africa cannot fill the gap of Australian ore in the short term. China also needs to be vigilant about the safety of furnace materials in domestic steel mills, so the probability of a complete ban on purchases is not high.

4. The game is still in the "fighting and negotiating at the same time" stage, and the ending is likely to be "limited concessions + new pricing template"

The Australian government has urgently arranged dialogues between the Ministry of Finance and BHP executives, and has hinted that it is "willing to continue negotiations on the pricing mechanism"; some domestic steel companies are also watching whether to expand RMB pilot purchases of Rio Tinto and FMG. Market generally expects:

- Short term: BHP may accept "mixed pricing" (part RMB, part USD) or offer freight discounts to exchange for China lifting the purchase stoppage;

- Medium and long term: the three major Australian mining giants will have to include "Chinese port delivered price, RMB settlement" options in their long-term agreements and increase the spot ratio, thereby weakening the traditional Platts pricing power.

II. The escalation of the China-Australia iron ore game has evolved from "a tug-of-war between buyers and sellers" to a "global impact on pricing power and rule leadership." Based on the latest market dynamics, it can be summarized as five spillover effects:

1. The seaborne iron ore pricing system shows signs of "dual track"

China's requirement for RMB settlement and the introduction of "Chinese port delivered price" references means that the U.S. dollar pricing system used for over a decade is beginning to loosen. If Australian ore accepts mixed pricing, the authority of U.S. quote systems like Platts will be weakened, and global steel mills and mines will have to monitor two price lists simultaneously, thus increasing market volatility.

2. The "de-Australianization" of the supply chain is accelerating, with Brazil and West Africa gaining premium windows

China Minmetals Group has already resold Vale's cargo in the spot market and expanded the purchase of Brazilian ore; the Simandou project in Guinea (designed to produce 120 million tons annually) is expected to start production by the end of 2025, and China has clearly provided "one-stop support" for financing, infrastructure, and shipping. In the short term, the spot premium of Brazilian iron ore has widened by 3–5 dollars per ton, and the interest in West African ore tenders has increased, causing the geographical center of global seaborne iron ore to shift from "Australia—Northern Hemisphere" to the "South America—West Africa—China" triangle.

3. Mining company stock prices and the Australian dollar exchange rate fluctuate in sync, and the fiscal expectations of resource countries are re-evaluated

After the announcement of the purchase stoppage on September 30, BHP's stock dropped 7% during the session, and Rio Tinto and FMG followed with drops of 4–5%. The Australian dollar fell 0.8% against the U.S. dollar that day. According to the Western Australia state budget model, every $10 decrease in the iron ore average price would reduce the state's revenue by about 2.2 billion Australian dollars. If the RMB settlement ratio increases, the "dividend" of Australia's exports measured in U.S. dollars will be further eroded, directly weakening its fiscal expenditure and current account surplus.

4. International freight rates and ship route structures are passively adjusted

The forward freight premium on the Australia-China route (C5) has been rapidly compressed, and the transaction activity on the Brazil-China route (C3) has increased. Some mining companies have started evaluating "Brazil-Middle East-Southeast Asia" transshipment schemes to avoid exchange rate and policy risks in trade with China. The daily rental fluctuation range of Cape-size bulk carriers has expanded from $20,000 to $35,000, and the "iron ore weight" of the global dry bulk freight index (BDI) has consequently increased.

5. RMB commodity settlement has obtained a "model item," accelerating the multipolarization of currencies

The annual trade volume of iron ore is about $250 billion, second only to crude oil. If China successfully embeds RMB settlement, it will replicate the "crude oil-RMB-gold" loop, promoting the simultaneous expansion of offshore RMB liquidity, hedging tools, and foreign exchange derivatives, weakening the "only clearing" position of the U.S. dollar in the field of commodities, and having long-term chain reactions on the global exchange rate system and central bank reserve structure.

Original: www.toutiao.com/article/1845039749108748/

Statement: This article represents the views of the author himself.