China muscle-flex is iron ore miners’ call to arms

Woodside Energy

28/07/2026 13:00

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.
By Antony Currie
MELBOURNE, July 28 (Reuters Breakingviews) - The new guard now running the world's two largest publicly traded miners face one of the biggest upheavals in the industry since the turn of the century: Beijing's push to wrest even greater influence over steelmaking and one of its key ingredients, iron ore.
That's a challenge for Brandon Craig, who took over as CEO of $214 billion BHP BHP.AX this month, and for Simon Trott, who is nearing his first anniversary as boss of $160 billion Rio Tinto RIO.AX. It also puts Australia, where both miners have headquarters and major operations, on the spot: at some 900 million tons a year, with around 70% going to China, the metal is by far the country's biggest export, valued at A$121 billion ($85 billion) in 2025.
The most obvious sign of President Xi Jinping's administration flexing its muscles is the current round of contract negotiations with its iron ore suppliers. The China Mineral Resources Group, set up in 2022 to centralise imports and increase Chinese steel producers' bargaining power, is using tactics during talks like effectively banning purchases of select products from BHP and smaller Australian rival Fortescue FMG.AX. The goal is to get the miners to pay in yuan and to base prices on Chinese, rather than usually more expensive, international benchmarks.
Beijing is aggrieved at the disparity in profitability between suppliers and buyers: BHP's iron ore unit boasts a 62% EBITDA margin, with Rio and Fortescue's just over 50%; most of China's steelmakers struggle to turn a profit though domestic overcapacity plays a big role. So far, there is little sign of the tussle weighing on miners' bottom line, but contracts only last a year or so, meaning more pressure is likely to emerge at each renegotiation.
Besides the price challenge, China is also pushing to make cleaner steel. At present the process in many countries including China relies heavily on coal-fired blast furnaces, making the industry responsible for around 9% of global greenhouse gas emissions. Green hydrogen - using renewable energy to make the gas - was meant to reduce that. But everything from high costs to transportation problems prompted most Western companies and governments to abandon or reduce their ambitions.
China's latest five-year plan in March, however, bestowed green hydrogen with frontier-industry status, all but ensuring it'll get more capital; last year that sum hit $3.7 billion , double what was invested in the United States, per Rystad. Beijing is backing that up with other measures, like putting steelmaking into the country's emissions trading scheme, meaning coal-reliant producers will have to pay to pollute, possibly prompting output cuts.
Were China's green steel plans to succeed, there would be major consequences for BHP, Rio and Fortescue, whose founder and Executive Chair Andrew Forrest was an early proponent of using emissions-free hydrogen.
Demand and price for their iron ore would drop. Australia's dominance at 52% of the traded market means it can't be completely replaced. But the green steel process at present requires iron be at least 67% of the ore. Australian grades are 62% at best - and falling - while Fortescue's is below 60%. Brazil and the new Simandou mine in the Republic of Guinea, partly operated by Rio, have more suitable offerings, though not at the scale needed.
There are ways to make lower-grade ores useable; BHP and Rio, for example, are working on a pilot project called NeoSmelt with BlueScope Steel BSL.AX, Mitsui Iron Ore Development and Woodside Energy WDS.AXindia. This would allow low-emissions smelting of the ore into iron, a key step in steelmaking. The sticking point remains how to make such operations commercially viable.
Australia is on paper ideally placed to make green iron, rather than just shipping the raw rock, as it should have the mineral, transportation and logistics, and renewable energy resources all in the same area; by contrast, China's green energy supplies are far from the smelters and mills. Done at scale, producing green iron could boost the industry's export value to between A$250 billion and almost A$400 billion, a recent OECD report laid out. Beijing, though, may not want to cede control over a large portion of the steel value chain.
Xi also may have another trick up his sleeve: recycling scrap steel. That only represents around a tenth of the 1 billion tons or so of the metal China produces each year, based on output from the electric arc furnaces that reuse the alloy. In the U.S. that ratio stands at 70%. China should be on the cusp of a surge in recycling: its construction boom started just over 25 years ago, roughly the average life for steel, so there ought to be a plentiful, long-term supply - though the market has been stagnant of late.
Imagine China lifted the share of steel made from recycled scrap from about 10% today to 50%, that would replace roughly 400 million tons of virgin steel production. Given around 1.6 tons of iron ore are needed for each ton of virgin steel production, China's annual iron ore demand could fall by some 640 million tons. Growing iron ore importers like India would not be able to pick up that slack.
BHP, Rio and Fortescue do have options. One is to speed up their decarbonisation efforts, making them more valuable to their top customer. Another is to cooperate more, whether with each other as on the NeoSmelt project, or with China's steelmakers. The People's Republic is already effectively Rio's largest shareholder thanks to Chinalco's almost 15% stake. And BHP has some projects with steelmaker China Baowu. Diversification would help, too: last year copper displaced iron ore as BHP's top money spinner, bringing in more than 50% of EBITDA; Rio has expanded into lithium, and has copper and aluminium businesses.
Sure, China has to tread carefully, too. For all the desire to be self-sufficient, China's leaders know low production costs support its international competitiveness, and Australia's iron ore remains the cheapest. But the People's Republic has catapulted the country ahead in key technologies like carmaking and renewable energy, and it has helped to displace Australia as a top nickel miner. That will have politicians in Canberra sweating about whether iron ore, the country's cash cow for the past 25 years, faces a similar fate.
Follow Antony Currie on Bluesky and LinkedIn.

(Editing by Una Galani; Production by Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on CURRIE/antony.currie@thomsonreuters.com))