Australia is the largest iron ore producer in the world. Iron ore is Australia’s biggest export earner. In 2014 it contributed around $75 billion in export revenues, providing a major source of income for the country. China is the largest consumer of iron ore, and most of Australia’s iron ore exports go to China. The Middle Kingdom’s relentless industrialisation and stimulus-based infrastructure spending over the past decade or so has resulted in growing demand for Australia’s iron ore. To satisfy this increase in demand, Australia has increased its production significantly. BHP Billiton Ltd [ASX:BHP] and Rio Tinto Ltd [ASX:ASX] are the largest producers, followed by Fortescue Metals Ltd [ASX:FMG]. Fortescue established itself after seeing the rise of China and realising what this would mean for future iron ore demand.
Iron Ore Price History
Despite China’s robust growth, the iron ore price is volatile. It rose to a high of nearly US$180/tonne in 2013, before plunging to around US$40/tonne in late 2015. It then recovered to around $90/tonne, before falling again. As nearly all iron ore production receives the ‘spot price’ (as opposed to a fixed long-term contract price), these fluctuations have a major impact on the profitability of Australian producers. During the iron ore price downturn from 2013–15, a number of iron ore producers nearly went under.
Best Iron Ore Investments?
Iron ore production is a ‘scale’ game. The more you can produce, the better and cheaper it is. That’s why Australia’s three big producers, as well as Brazil’s Vale, dominate the global market. Iron ore, thanks to its huge export earnings, also has a major effect on the Aussie economy. When prices rise, it’s good for the economy, but when prices fall, it has a negative effect.