With uncertainty surrounding iron ore demand, Citi sees a risk to the Australian economy via Investing.com

Citi’s commodity strategies highlighted the significant role of the Australian economy, highlighting its contribution to government profits and revenues.

In fiscal 2024, iron ore economic profit from mining majors BHP Group Ltd ADR (NYSE: ), Rio Tinto ADR (NYSE: ) and Fortescue Metals Group Ltd (ASX: ) was about $36 billion. This figure represents a substantial portion of the total economic profit from Citi’s Australian mining coverage, which stood at approximately $39 billion.

“While there is support in the iron cost curve in the near term, we see downside risk in the longer term as the curve may reshape considerably based on significantly lower demand from China,” the report said.

The report also noted near-term support for iron ore prices due to the cost curve. When iron ore prices are high, China’s imports from countries other than Australia, Brazil and South Africa tend to rise to around 20 million tonnes per month.

Conversely, when prices fall to the $90-$100 per tonne range, these imports shrink to around 10 million tonnes per month. In July, imports fell to around 14 million tonnes per month.

Looking at the long-term outlook, Citi highlighted the challenges of China’s iron ore demand. The firm forecasts steady per capita steel consumption in China at around 660 kilograms per person in calendar years 2026 and 2027, followed by a gradual decline to around 560 kilograms by 2040 as urbanization rates mature .

Moreover, China’s share of electric arc furnace (EAF) steel production is expected to increase from about 10% in 2023 to 24% by 2040, while electric furnace steel production will decrease from 918 million tons in 2023 to 624 million. tons in 2040.

China’s iron ore requirement peaked in 2020 at 1.3 billion tonnes, with an expected decline to 1.1 billion tonnes by 2030 and 850 million tonnes by 2040.

Citi strategists concluded that a reduction in Chinese demand could lower the top of the global iron ore cost curve to about $60 a tonne, removing about 400 million tonnes a year from the market.