With global demand for high-grade iron ores increasing as the steel sector decarbonises, a looming supply deficit is creating a plethora of opportunities for new suppliers – including Australia – provided they can act quickly.
A fresh report from the Institute for Energy Economics and Financial Analysis (IEEFA) examines the accelerating shift in the global market for high-grade iron ore as the steel industry transitions to low-emissions production. At the core of that transition is direct reduction (DR) technology, which requires iron ore feedstock of a higher quality with lower impurities.
Titled Global high-grade iron ore market is set to grow, the report shows that established iron ore suppliers in Canada, Brazil, and the Nordic region, along with emerging players in regions such as Africa and the Middle East, are already leading the shift to production of DR-grade feedstock. However, demand is growing at such a rate that a global supply deficit is expected in the coming years.
According to Soroush Basirat, Energy Finance Analyst, Global Steel at IEEFA and author of the report, this creates significant opportunities for other contenders to enter the market.
“Globally we’re seeing an increasing number of new direct reduction plants coming online that do not have access to DR-grade feedstock domestically. This will increasingly place pressure on the global seaborne market for DR-grade ore. Multiple forecasts suggest that a supply deficit is likely. For new suppliers, the high-grade iron ore market represents a distinct emerging opportunity that should not be overlooked,” Basirat says.
Iron ore is Australia’s largest export, yet its production is dominated by lower-grade ore suitable for traditional blast furnace-based steelmaking, the long-term outlook for which is declining – in particular as its key export market – China – moves toward low-emission iron production via DR.
Basirat argues that the global shift toward DR presents a vital opportunity for Australian iron producers to diversify their demand base:
“Without participating in the supply of higher-grade materials, Australia risks losing strategic relevance in a market increasingly shaped by decarbonisation and demand for premium iron ore products,” says Basirat.
While Australia doesn’t have the highest-quality iron ore that is already in production and readily available for this transition, Basirat notes it holds significant potential in magnetite mining, which is crucial to producing high-grade ore.
Establishing new production capacity based on magnetite deposits will involve long development timelines, but with most forecasts pointing to supply deficits emerging after 2030, there is a narrow window of opportunity for Australia to position itself to support decarbonisation initiatives among its traditional trading partners in Asia.
Basirat adds: “Decisive and timely action will be critical for Australia to keep pace with global developments in low-emissions ironmaking. While production from new deposits may still be a decade away, this timing could align well with the expected wave of new DRI projects at the global scale. With stronger support from governments, investors, and iron and steel producers, Australia could have the potential to compete.”
Global seaborne iron ore
Global seaborne iron ore flows increased 3% year-on-year in 2025, yet downstream indicators remain weak with the outlook for the rest of 2026 pointing to mounting pressure from weak steel demand in China and elevated port inventories.
As Q1 2026 ends and heading into Q2, Australia and Brazil remain the dominant exporters, accounting for more than 78% of global seaborne iron ore, while Canada ranks a very distant third, supplying less than 4%.
Data from the World Steel Association shows global crude steel production down 2% in the first 11 months of 2025, which is expected to continue in Q2 2026 and beyond.
Signal says the increase was driven by China, where imports rose 4% (about 52Mt), and India, where flows surged 72%, adding almost 6 million tonnes. For 2026, weaker Chinese steel production remains the dominant factor shaping iron ore demand.
Steel output in China and Japan – the two largest iron ore importers – both fell 4% in 2025, highlighting a growing disconnect between iron ore imports and steel demand.
Declining steel production in China, coupled with higher imports, has pushed iron ore port stocks to multi-year highs. This has continued into 2026 with China estimated to have produced 75.3Mt in January, down 13.9% on January 2025.
Meanwhile, India produced 15.1Mt, up 10.5%. The US produced 3.3% more with 7.1Mt, Japan produced 6.8Mt, down 0.5%, while South Korea at 5.6Mt is up 5%.
The Signal Group, which brings together deep shipping expertise and advanced analytics technologies, reports iron ore flows in 2025 increased yet the outlook for 2026 points to mounting pressure from weak steel demand in China and elevated port inventories, raising questions about how long stockpiling can continue.
‘Surplus-prone’ market outlook
Westpac Senior Economist Justin Smirk says commodities entered 2026 with strong momentum, with Westpac’s broad index up nearly 11% since December and widespread gains across metals and energy, led by gold.
“We have upgraded our end‑2026 outlook materially, lifting forecasts for gold, copper, nickel and oil, leaving our broad commodities index around 16% higher than in our December publication,” Smirk writes in a 17 February Westpac IQ 2026 outlook report.
“Looking ahead, gold remains the standout, base metals are well‑supported but range‑bound, iron ore faces renewed downside, and energy markets remain firm near term but capped by rising supply and softer global growth.”
Smirk says the medium-term outlook remains challenging amid rising supply and moderating demand pointing to a more “surplus-prone market”.
“However, fundamentals have held up better than expected, with prices above US$100/t through 2025. We expect prices to dip below $100/t in the first quarter as demand continues to soften combined with incremental growth in supply,” says Smirk.
“Further out, the market will move into surplus as supply lifts and demand eases. Chinese steel production peaked in 2020 and has been trending down since. Scrap displacement should also increase, partly offset by growth in demand from India and Southeast Asia.
“With additional supply from Simandou and major producers outweighing depletion among marginal producers, prices should fall below US$85/t through 2027.”
“Chinese steel production peaked in 2020 and has been trending down since. Scrap displacement should also increase, partly offset by growth in demand from India and South‑East Asia”
According to Smirk, iron ore prices have been weighed down by elevated Chinese port inventories, steel mill maintenance, and cautious procurement ahead of the Lunar New Year holiday. China’s stockpiles have reportedly hit a record, with the amount of iron ore awaiting processing rocketing 25% since August 2025 to more than 163 million tonnes.
“Fresh seasonal highs in port inventories reinforced demand concerns with activity slowing into the holiday period and as you can see in the chart below inventories rising and getting to testing levels compared to measure of demand: compared to pig iron production inventories are the highest since January 2022 and compared to steel production, they are the highest since June 2026,” Westpac’s Senior Economist says.
“Supply‑side risks briefly emerged following Tropical Cyclone Mitchell, which forced bulk carriers out to sea from major Pilbara Ports. However, the system tracked southwest allowing ports to reopen and the Bureau of Meteorology to cancel its weather advisory with no reports of material damage, resulting in only a temporary impact on prices.”
Stockpiling ahead of the Chinese New Year is typical, however inventories have been rising steadily since summer. Downstream steel demand has underperformed, prompting mills to cut output, while government efforts to curb overcapacity and the impact of trade barriers are expected to weigh further on production in 2026, as reported.
Global seaborne iron ore flows
Global seaborne iron ore flows reached 1.7 billion tonnes last year, representing a 3% increase year-on-year. Signal says the increase was driven by China, where imports rose 4% (about 52Mt), and India, where flows surged 72%, adding almost 6 million tonnes.
Australia and Brazil have remained the dominant exporters, accounting for more than 78% of global seaborne iron ore, while Canada ranked a very distant third, supplying less than 4%.
Despite stronger trade volumes, downstream indicators remain weak. Data from the World Steel Association shows global crude steel production down 2% in the first 11 months of 2025.
In terms of crude steel, Africa produced 2Mt in January 2026, up 5.8% on January 2025. Asia and Oceania produced 107.6Mt, down 8.6%. The EU (27) produced 10.3Mt, down 2.3%.
Europe, Other produced 3.7Mt, up 4.4%. The Middle East produced 4.8Mt, up 12.6%, while North America produced 9.2Mt, down 0.6%. Russia and other CIS plus Ukraine produced 6.5Mt, down 8.6%. South America produced 3.4Mt, down 1.2%, according to the World Steel Organisation.
Shipping ahead
Fenix Resources (ASX:FEX) shipped a record 1.2 million wet metric tonnes (wmt) of iron ore during the December 2025 quarter, resulting in a $79 million cash windfall.
The performance from Q4 2025 equates to an annual production run-rate of around 4.9 million tonnes per annum. Fenix says this showcases the scalability of their integrated mining and logistics operations.
The quarterly results come on the back of optimised mining operations across Fenix’s Mid-West assets, more efficient haulage operations via the company’s wholly owned subsidiary, Newhaul, and the streamlined Newhaul port operations at Geraldton.
Fenix reconfirms its guidance for FY26 for total iron sales between 4.2-4.8 million tonnes.
Western Australia remains iron ‘King’
Federal Resources Minister Madeleine King says iron ore is the bedrock of the economy and the exports out of the Pilbara are important to the Australian economy and federal budget.
Meanwhile, an interesting Bankwest Curtin Economics Centre report finds the iron ore price is intrinsically linked to Western Australia’s historically tumultuous population growth. The report suggests the state’s population will grow by almost a million to reach four million residents by the early 2040s.
Usually when the iron ore sector and mining in general is booming in Western Australia, the state experiences a spike in interstate migration as the jobs market opens up and miners seek more skilled labour.
Prices eased to just above US$100 per tonne, briefly testing the lows seen in August 2025 then as we were updating this report prices dropped to US$98/t as we headed into the Chinese holiday period.
Iron ore prices then rose in early March as China renewed a pledge to tackle chronic overcapacity in its steel sector, increasing 2.5% to just over $US101 a tonne on 5 March.
It comes as Western Australia’s Department of Treasury and Finance forecasts an extra $94 million in iron ore royalties a year for every $US1 ($1.41) increase in the commodity price.
State government figures show sales of the steelmaking commodity from Western Australia were $121.5 billion in 2024-25 with royalty receipts totalling $8.6 billion.
Almost 50% of mining jobs in the mining state were in iron ore-related in 2024-25, a record of almost 65,500 full-time-equivalent positions. Around one in 10 jobs in Western Australia is in mining and resources.
Iron ore players
Yet iron ore is a major component of other state’s mining activities.
Hawsons Iron (ASX:HIO) is one player heavily focused on iron ore. The company has established a forward works plan for 2026, which includes confirmatory/optimisation testwork at scale, completion of viability works for byproduct extraction, drilling to expand and upgrade portions of the mineral resource to measured and indicated categories, representative sample collection for pilot work, waste management plans, the start of the Feasibility Study, and environmental and permitting plans.
The company recently provided updates on its dry grinding testwork programs, confirming the suitability of vertical roller mills (VRMs) for its ore. The testing verifies the ability to leverage their material properties, relative to conventional wet grinding processes typically used globally. It also confirms that Hawsons’ ore is soft and exhibits low abrasion coefficients, relative to other magnetite ores.
The testwork is a crucial first stage for vendor-led programs to characterise Hawson’s ore properties and establish test facilities to prepare for larger-scale testing in 2026.
The initial results from this testwork confirm the design criteria and equipment selections outlined in the company’s recently completed Prefeasibility Study (PFS).
In December 2025, Hawsons announced 2.3 billion tonnes of a probable ore reserve estimate for the wholly owned Hawsons Iron Project in New South Wales. This estimate, alongside the results of the PFS, estimate the project at 2.3 billion tonnes at an average grade of 11.7% Davis tube recovery and 16.7% total iron.
The PFS has defined a project development strategy based on production figures of up to 12Mtpa of greater than 68% iron-magnetite concentrate with a 26 year life of mine estimate.
Project economics outline a pre-tax internal return rate of 10.93% and a pre-tax net present value of $1,360 million at a price of US$140 per tonne.
Meanwhile, Black Canyon (ASX:BCA) achieved key objectives for the Wandanya Manganese and Iron Project before the start of the wet season begins.
The company in December completed the PQ3 diamond drill program, delivering around 2,000kg of core sample material to be sent for metallurgical testwork.
Also, the third heritage survey has been completed across the known 3km-long Wandanya mineralised area, enabling closer-spaced infill drilling as well as extension drilling to the east and north.
Wandanya South heritage surveys were set to be completed in Q1 2026.
Managing Director Brendan Cummins says the heritage survey will enable for ongoing drill programs starting early this year and the collection of the diamond core will further advance the metallurgical understanding of the manganese and iron mineralisation.
“The company is now primed for an exciting 2026, as we continue to unlock the full potential of the unique Wandanya deposit and de-risk the project with more drilling and metallurgical studies,” says Cummins.
Earlier in February, Tempest Minerals (ASX:TEM) completed the sale of the Yalgoo Project for $4.5 million, with further milestone payments possible upon future discoveries or production, to Capricorn Metals (ASX:CMM).
Tempest will retain the iron rights for the previously identified iron-bearing tenements, which host the Remorse deposit and Halo targets.
The geology of the project is a complex mineral system within the Yalgoo Greenstone Belt, with mineralised zones displaying zonation typical of VMS deposits. High-grade magnetite intersections up to 39% Fe, with additional copper-zinc mineralisation and northeast-trending REE and nickel zones.
Tempest continues to explore its portfolio of projects in Western Australia including the recent discovery of gold in drilling at the Range Project in Mt Magnet.
Work with Green Iron and Steel (GISA) is continuing with intent to progress the Remorse iron deposit and create a multi-user vertically integrated iron production hub.
Write to Adam Orlando at Mining.com.au
Images: Black Canyon, iStock & Mining.com.au
