The boom delivered huge profits and bumper dividends across all three Australian mining giants, and helped bolster Australia’s finances during the depths of the COVID-19 crisis. In 2020, iron ore accounted for $120 billion in export earnings – the first of any Australian export to top the $100 billion mark.

Australia is the world’s largest iron ore producer and the biggest shipper of the commodity to China, which accounts for about 70 per cent of global demand.

‘The correction in iron ore prices has played out faster than expected.’

UBS analyst Lachlan Shaw

However, the material is under mounting pressure as Beijing deepens production cuts across its steel mills to reduce emissions from one of its worst-polluting industries, Commonwealth Bank mining analyst Vivek Dhar said.

“China is looking to cap China’s crude steel output in 2021 at 2020 levels to reduce emissions,” he said. ” That implies an approximately 12 per cent year-on-year contraction in China’s steel output from September to December.”

Chinese steel output cuts may accelerate later this month or October, Mr Dhar added, as a number of provinces fell behind their reduction targets. “Steel mills in Jiangsu, Shandong and Liaoning – the largest steel producing provinces after Hebei – have gradually launched steel output cuts since the beginning of September,” he said.

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It comes as China has been showing growing appetite for another one of Australia’s most valuable commodity exports, liquefied natural gas (LNG).

Despite worsening trade tensions between Beijing and Canberra that have affected the flow of other goods, nine additional cargoes of LNG were delivered from Australia to China last month, according to energy consultancy EnergyQuest.

“In August, 41 cargoes were delivered to China after delivering 32 in July and 36 in August 2020,” EnergyQuest chief executive Graeme Bethune said.

China, the world’s biggest consumer of raw materials, has been imposing tariffs and import restrictions targeting Australian shipments of a range of products including wine, barley and beef, and has an unofficial ban on all Australian coal deliveries.

There are concerns Australia’s new security pact with the United States and United Kingdom may add to the diplomatic fallout and the risk of it continuing to spill over into trade.

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