Iron ore is Australia's most valuable export commodity, generating approximately $130 billion in export revenue in a typical year. It is the foundation of Australia's terms of trade, a primary driver of federal government revenue, and the main reason Australia's budget position is so sensitive to Chinese economic conditions. Understanding iron ore is not optional for anyone trying to understand the Australian macroeconomic outlook.
Australia's Market Position
Australia — primarily through the Pilbara operations of BHP, Rio Tinto, and Fortescue — supplies approximately 55 per cent of global seaborne iron ore. Brazil is the other major exporter, with a market share of around 25 per cent. This duopoly gives Australian producers significant pricing power in normal conditions. No other country can supply iron ore of comparable quality and volume at competitive cost, which is why China's dependence on Australian supply remains near-total despite the political tensions of 2020–21.
What Drives the Price
Iron ore is priced in US dollars per tonne and is driven overwhelmingly by Chinese steel production, which in turn is driven by Chinese construction and infrastructure activity. When Chinese property developers are building apartments and the government is investing in infrastructure, demand for steel — and therefore iron ore — is high. When China's property sector is in crisis, as it has been since 2021, iron ore demand softens. The price has fallen from above US$200 per tonne in 2021 to a range of US$80–$110 through 2024 and 2025.
Budget Sensitivity
The federal government's budget position is highly sensitive to the iron ore price because company tax receipts from mining companies are enormous. Treasury estimates that a US$10 per tonne change in the iron ore price changes company tax receipts by approximately $2 billion per year. A sustained fall to US$70 per tonne — not the base case, but within the range of plausible outcomes if China's construction activity continues to contract — would put significant pressure on the budget surplus and force a reassessment of spending plans.
