China has been increasingly reliant on iron ore imports over the past two decades, given its low-grade, high-cost domestic resources, which have been gradually displaced by high-grade, low-cost seaborne imports. Australia accounted for 68% of China’s iron ore imports in 2021. This dependency has always been a cause of sporadic conflictual situations between the two countries, with China trying (unsuccessfully) to find alternative iron ore supply sources.

China's annual domestic production has fluctuated between 200Mt and 300Mt over the past decade, with a significant proportion being uneconomical below US$100/t. However, China wants to boost its domestic iron ore production by 100Mtpy and raise its share of overseas iron ore production from 120Mt in 2020 to 220Mt by 2025. Project Blue believes that increasing domestic production in a medium-term declining seaborne market and amidst lower iron ore prices will be difficult to achieve from an economic angle, considering the low iron ore content of China's resources.

China’s best hopes to lower its dependency on Australian imports rely on the development of the Simandou mine in Guinea. The saga of the world’s largest untapped iron ore deposit started back in 1997 and has been marred by legal battles involving licencing rights, corruption charges and political turnarounds. The Simandou-North block mining rights belong to a Singapore-China consortium, SMB-Winning. The Simandou-South mining rights are owned by a RioTinto-Chinalco consortium. Both blocks would have a potential production capacity of 100Mtpy. The CAPEX for the development of Simandou-South is estimated at about US$15Bn, including a 650km railway and the construction of a deep-sea port.

The set-up of China Mineral Resources Group could signal a strong political commitment from the Chinese government for the development of Simandou but whether it will be sufficient to solve logistics and political issues in the short term remains questionable. In the meantime, China will still have to rely on Australian iron ore imports for the years to come.

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