Can the iron ore prosperity continue?

Share on facebook
Share on twitter
Share on linkedin

A perfect storm in iron-ore markets has catapulted Gina Reinhart and Andrew ‘Twiggy’ Forest into the top two positions on the Australian Financial Review’s 2020 Rich List, but could their success force China to curtail the dominance of Australia’s biggest contributor to GDP? At Acorn we think it could, and what’s more we also think this seismic change is already under way.

To listen to Rick Squire and Karina Bader’s thoughts on the current iron ore dynamics, click here for the audio interview or see below for a transcript of the conversation.

[00:00:01] Welcome to the Acorn Capital Market Insights where we’ll be sharing our views on particular thematics at the moment. And today I have Rick Squire and Karina Bader to talk about iron ore. So Karina with iron ore prices, they’ve experienced a stellar run for the last two years. What do you think is driving the strength in iron ore prices?

[00:00:22] Iron ore prices initially ran in 2019 on the back of supply disruptions from the Samarco tailings dam tragedy. Those supply disruptions were further compounded by the impact of COVID-19 across Brazil coupled with continued demand out of China. These are the factors that have been the driver of strong iron ore prices over the past two years.

[00:00:44] So who has been the main beneficiaries of the strong iron ore prices?

[00:00:51] Australia as the largest iron ore producer on earth is the main beneficiary. The Australian Government through company taxes and record trade balances and then investors in iron ore producers who have benefited from strong share price performance and dividend returns over the past two years. Most notable beneficiaries are shareholders such as Gina Rinehart and Andrew Forrest who were named first and second place in the AFR 2020 Rich List.

[00:01:18] Karina noted that Australia has been a major beneficiary of this perfect storm for iron ore prices. Rick do you think that this can continue for the years to come?

[00:01:27] It’s certainly in the near term I think it can continue. But what we’re noting is that a number of commentators are highlighting the Strategic and Defence nightmare that this reliance on Australian iron ore has created for China. The reason for that is iron ore is used in steel production and is arguably China’s most important raw material. However the last two years has seen China now obtaining two thirds of its iron ore supply from Australia. Now regardless of Beijing’s relationship with Canberra the one or one of strategic risk management says such reliance on such an important commodity is an unacceptable risk.

[00:02:11] And with these risks do you think China may want a new source of iron ore that are outside of Australia and Brazil? Can they find a source that’s large enough to meet their demand?

[00:02:22] That’s a good question. I think it’s something that China is already working on. Guinea in West Africa contains more than 2 billion tonnes of iron ore resources at some of the highest average grades on Earth. The largest of their deposits Simandou was recently awarded to a Chinese controlled consortium with a large scale mining and shipping experience in Guinea. SMB Winning is planning to build a railway and deepwater port within the next five years. Once in operation, SMB Winning could significantly reduce China’s reliance on Australia’s iron ore. This will also put downward pressure on the iron ore price. I’ve been to Guinea and I’ve seen firsthand how SMB Winning has quickly and successfully started up its bauxite operations. One thing the Chinese are very good at is building infrastructure in difficult locations so the speed with which they can get Simandou into production should not be underestimated.

[00:03:22] I think the clock is ticking on the current iron ore boom and investors should be well aware of well.

[00:03:30] Thank you very much for your time Rick and Karina. You’ve definitely given the audience lots to think about and digest. I thank our listeners for tuning in and we hope to share more of these commentaries and insights in the months to come.

More to explore

Site terms of use

Due to legal restrictions, sections of this website including the News & Insights section, as well as the ability to have news sent to you is available only to residents of Australia from within Australia. By proceeding you confirm that you are a resident of Australia accessing this website from within Australia and you represent, warrant and agree that:

  • you are not in the United States and you are not acting for the account or benefit of a person in the United States;
  • you will not make a copy of the documents on this website available to, or distribute a copy of such documents to, any person in the United States or in any other place in which, or to any other person to whom, it would be unlawful to do so (Ineligible Persons);
  • the State or Territory and postcode provided by you for your primary residence in Australia are true and accurate; and
  • you are not acting as nominee for, or otherwise for the account of benefit of, any Ineligible Persons.


1.2 Publisher of website

The publisher of this website is Australian Microcap Investments Pty Ltd ACN 127 745 395 (AMI). AMI is a wholly owned subsidiary of Acorn Capital Limited ABN 51 082 694 531 AFSL 227605. AMI is a Corporate Authorised Representative of Australian Unity Funds Management Limited ABN 60 071 497 115; AFSL 234454 (AUFM). The contact details of AMI are:

Address: Level 4, 2 Russell Street, Melbourne Vic 3000


Tel No.: (03) 9639 0522

1.3 Authorised services

The kind of financial service AMI provides as a Corporate Authorised Representative of AUFM is general financial product advice to retail and wholesale clients in relation to securities. None of AMI, AUFM, any employee or director of AMI or AUFM, or any associate of any of the above will receive any remuneration in respect of, or that is attributable to, the general advice given on this website. Neither AMI nor AUFM consider that there are any associations or relationships between them and the issuers of any financial products referred to in this website.

1.4 General advice warning

To the extent any of the content of this website constitutes financial product advice each reader of this website is put on notice that:

  • the advice has been prepared without taking account of the reader’s objectives, financial situation or needs (circumstances);
  • because of that, the reader should before acting on the advice, consider the appropriateness of the advice, having regard to the reader’s circumstances;
  • if the advice relates to the acquisition, or possible acquisition, of a particular financial product (not comprising securities), the reader should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product.
  • while every care has been taken in the preparation of this website it does not contain any recommendations to buy or sell any particular stock(s) noted.

1.5 Disclaimer

No person should rely on the content of this website without first obtaining advice from a qualified professional person. This website is provided on the terms and understanding that:

  • AMI, AUFM and their respective directors, officers, agents and employees (collectively and individually, Disclaiming Parties) are not responsible for the results of any action taken or omitted to be taken on the basis of information in this website, nor for any error in or omission from this website;
  • AMI is not engaged in providing financial, legal, accounting, professional or other advice or services;
  • to the maximum extent permitted by law, the Disclaiming Parties expressly disclaim all and any liability and responsibility to any person, whether a reader of this website or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the content of this website; and
  • without limiting the generality of the foregoing, no Disclaiming Party will have any responsibility for any act or omission of any other Disclaiming Party.