China-Australia iron ore trade will not "hard decouple", but is shifting from "Australia's dominance + long-term dollar contracts" to a new balance of "reduced Australian ore + diversified sources + RMB spot + green clauses".

Political friction may intermittently increase spot premiums, but it cannot change Australia's "price for volume" and China's "volume reduction for price" long-term strategy.

One, at least four layers of information are revealed:

1. Price negotiations have escalated into national-level博弈

Multiple sources including Bloomberg, ABC, and the Australian Stock Exchange confirm that China's state-owned procurement platform CMRG has verbally notified steel mills and traders to "suspend all new BHP shipments priced in US dollars", with the stated reason being "contract negotiations are stuck", but the real intention is to use the procurement ban as a bargaining chip to force Australia to make concessions on iron ore pricing. Albanese keeps saying "hope the market operates normally", which is equivalent to shifting the responsibility for negotiation failure to China, leaving space for subsequent diplomatic maneuvering.

2. Australia is extremely sensitive to "economic sanctions 2.0"

The coal, wine, and lobster bans from 2020-2021 caused heavy losses for Australian companies. The Albanese government had just repaired trade relations with China, and bilateral trade reached a peak of 312 billion Australian dollars in 2024. At this time, another "purchase ban" targeting the largest single miner would immediately raise concerns among the Australian government that this is the beginning of China's "new sanction list," so they quickly spoke out to cool down the situation.

3. Australia's domestic political rhythm is forced to be advanced

The Australian Prime Minister is about to visit China next month, and the domestic debate over the "Darwin Port mandatory recovery" issue is showing strength towards China. China chose this moment to "stop" BHP, both testing Australia's flexibility on port issues and AUKUS, and also putting Albanese in a dilemma between "economic punishment" and "pre-election promises." Early statements of "concern" can serve as public opinion preparation for bundling iron ore and port issues during the visit.

4. The "steel and ore mutual dependence" between China and Australia is showing tactical loosening

China is pushing forward the Simandou large mine in Guinea, increasing domestic ore production, and recycling scrap steel, trying to reduce its reliance on Australian ore; Australia is eager to bind iron ore to the new concept of "green steel" to retain the Chinese market with high-grade ore. This "purchase ban" indicates that Beijing is willing to bear short-term costs, using demand-side leverage to compete for pricing power, while Australia has no countermeasures except verbal protests, relying on "market rationality" and high-level dialogue.

Two, according to the latest assessments of multiple institutions for the second half of 2025, China-Australia iron ore trade will present four definite trends in the next five years: "total volume still large, proportion declining, price pressure, financialization accelerating", accompanied by a three-stage cycle of "political friction - commercial self-rescue - rebalancing."

(1) Total volume: China still can't do without Australian ore, but the dependence rate drops from 85% to 55%

1. Demand side: China's crude steel production has reached its peak, but the gap in high-grade ore (≥62% Fe) remains. Before 2025, blast furnace processes still account for 88% of steel production, and the short-term reliance on the "low silicon, low aluminum" formula of Australian ore cannot be replaced.

2. Supply side:

- The expansion projects of the four major Western Australian mines (Rio Tinto, BHP, FMG, Roy Hill) will add a cumulative capacity of 110 million tons from 2024 to 2026, with costs still below $30 per ton; even if prices fall to $60, they can maintain an EBITDA margin of over 30%, so they won't actively cut production.

- China's alternative supply chain—Guinea's Simguindo (joint venture of Rio Tinto and Chinalco), the northern system of Brazil's Vale, and increased domestic ore production—can only form a cumulative increase of 150 million tons by 2027, and they still face obvious disadvantages in freight and impurities.

Conclusion: Before 2027, China's annual imports of Australian ore will remain at a high level of 700-750 million tons, but the proportion of total imports will drop from 85% in 2023 to around 55%.

(2) Price: Long-term premium disappears, RMB spot price becomes the "new anchor"

1. Pricing currency: Starting from Q4 2024, BHP and Rio Tinto have switched 60% of their dollar long-term contracts to "RMB spot average at Qingdao Port minus 2%", and have launched RMB swaps on the Australian Stock Exchange and Dalian Commodity Exchange. China's goal is to raise the proportion of RMB settlement in iron ore trade to 50% within three years, to reduce exchange costs and enhance bargaining power.

2. Price range: Several investment banks (UBS, Macquarie) consistently expect the 62% index center to be 60-75 USD/ton from 2025 to 2027, a 40% decrease from the 2019-2021 average of 110 USD; the Australian Treasury estimates that if the 62% index averages 65 USD annually, the federal tax revenue will decrease by about 12 billion Australian dollars over three years.

3. Trading venues: The Australian Labor Party internal has proposed a "Sino-Australian joint spot market", unifying the current scattered bidding, platform orders into a tri-line matching of Shanghai Steel Union, Singapore Exchange, and Australian Stock Exchange, reducing smuggling and stockpiling.

(3) Risk scenarios: Political friction → purchase ban → rapid repair

1. Trigger points: AUKUS nuclear submarine deployment, Taiwan Strait tensions, Australia's export control of key minerals to China, etc.

2. China's toolbox:

- Suspend specific miners' dollar long-term contracts (similar to the BHP incident in October 2024);

- Lower the convenience level of import inspections for Australian ore, extending customs clearance times;

- Launch state reserves sales and increase short-selling margins on the Dalian Commodity Exchange to suppress the price on the market.

3. Australia's self-rescue:

- Miners immediately increase RMB spot sales, bypassing dollar sanctions;

- The Western Australian government directly connects with Chinese steel mills, promising "state-level terms" remain unchanged;

- Collaborate with Japanese and South Korean steel companies to raise prices, sharing the Chinese demand gap.

Original: www.toutiao.com/article/1844755341203456/

Statement: This article represents the views of the author.