China’s green transformation is challenging Australia’s raw materials model

Australia, one of the largest suppliers of raw materials to China’s steel industry, is facing a new challenge. Beijing’s green policy of decarbonizing steel production is changing the rules of the game for Australia’s key exports, iron ore and coking coal. This is stated in the Asia Times review.

In 2024, iron ore shipments from Australia to China exceeded $100 billion, accounting for more than half of all Australian exports to the country. At the same time, China is undergoing a large-scale transformation: at the beginning of the year, the national CO2 emissions trading system was extended to the steel industry, and in July, the government obliged producers to actively switch to green energy.

The rapid deployment of electric arc furnaces (EAFs) using scrap or direct reduced iron (DRI) has become a symbol of the changes. China’s EAF capacity already exceeds 160 million tons per year, the same as in the US and Japan combined. Although their share in steel production has not yet reached the 15% target, old blast furnaces are gradually becoming obsolete.

For Australia, this means losing markets: coking coal is less and less needed, and low-quality ore is poorly suited to producing green steel without additional processing.

During his recent visit to China, Prime Minister Anthony Albanese initiated a dialogue on the decarbonization of the steel industry. This could be a turning point if the talks translate into joint investments and standards in green hydrogen, iron and steel.

To remain competitive, Australia needs to invest in deep processing of raw materials, develop green technologies, and create new financial instruments such as green steel certificates. Otherwise, its traditional export assets risk becoming unprofitable in the coming decades.

As a reminder, Australia forecasts a decline in revenues from iron ore exports from $116 billion in the 2024-2025 fiscal year to $97 billion in 2026-2027. The main reasons for the decline are the weak dynamics of global steel demand, a decline in production in China and the gradual saturation of the market by Brazil and Africa.