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October 8, 2025
China has suspended all USD-settled transactions with BHP, the world's largest iron ore mining company, signaling a significant shift in its approach to the global iron ore market. Australian Prime Minister Anthony Albanese has responded cautiously, expressing his hope of seeing “Australian iron ore to be able to be exported to China without hindrance”.
Since 1996, China has been the world’s largest steel producer. In 2024, China produced approximately 1.01 billion tonnes of steel, accounting for roughly 54% of global output, driven by government support for the industry.
However, the entire Chinese steel industry’s total profit in 2024 was a modest 29.1 billion RMB (approximately USD$4.1 billion), with a razor-thin net profit margin of 0.41%. The low profitability stems from an over-reliance on imported iron ore, which is the primary raw material for steelmaking. China, in order to sustain its steelmaking industry, needs a stable and continuous supply of iron ore because a blast furnace requires continuous operation to prevent solidification and extensive repairs. In simple words, the supply of iron ore can never be stopped - otherwise all steelmaking facilities will become wasted immediately.
Yet, China’s domestic iron ore production is limited by low-grade deposits and high extraction costs, which makes imports critical. In 2024, China imported 1.237 billion tonnes of iron ore, with 7.43 billion tonnes (60.1%) sourced from Australia. BHP alone supplied 40% of China’s iron ore imports.
In stark contrast, the iron ore mining industry enjoys staggering margins. BHP reported a net profit of USD$9.02 billion for the 2024-25 financial year, more than twice the entire Chinese steel industry’s profit in the same year. In Australia, the unit cost of iron ore production is less than $19 per tonne, while spot prices often exceed $100 per tonne, yielding extraordinarily high margins. This disparity is remarkable, given that iron ore is not a value-added product, while China controls the world’s most advanced steelmaking technology and capacity.
China has been strategically reducing its dependency on foreign iron ore and strengthening its bargaining power through several measures,
First, promoting RMB payments: In 2022, Baosteel, the world’s largest steelmaker, settled around 10% of its iron ore purchases in Chinese yuan (RMB). Major miners like BHP, Rio Tinto, and Vale have accepted RMB payments for exports to China, though USD transactions still dominate. This shift enhances China’s financial leverage.
Second, consolidating domestic demand: In 2022, the Chinese government established the China Mineral Resources Group to centralize iron ore purchasing and stockpiling on behalf of the steel industry. This move consolidates bargaining power, allowing China to negotiate better terms with global suppliers.
Third, developing new infrastructure: In July 2024, China signed an agreement with Brazil to develop the Transoceanic Railway, connecting Brazil’s Atlantic coast to Peru’s Pacific ports. This rail link will expedite iron ore shipments to China, bypassing the Panama Canal and reducing logistics costs.
Fourth, diversifying suppliers: China has a 75% stake in Guinea’s Simandou iron ore project, the world’s largest undeveloped high-grade iron ore deposit. The first shipment from Simandou is expected by the end of 2025, further diversifying China’s supply chain and reducing reliance on Australian imports.
China’s multi-pronged strategy, developed over years, has positioned it to renegotiate terms with iron ore miners, like BHP.
The suspension of USD-settled transactions with BHP signals a tougher road ahead for iron ore miners. A higher proportion of payments will be done in RMB instead of USD, and the margins will shrink as China finally takes its first step to demand new terms after its recent centralization of domestic buying power.
China’s actions align with its broader goal of addressing “involution” (反内卷 - excessive internal competition), as outlined in the March 2025 government work report. By integrating domestic and international supply chains, China aims to secure greater profitability for its steel industry and support high-quality economic development （高质量发展）.
Iron ore constitutes 60% of Australia’s exports to China (Q1 2024), making the country particularly vulnerable to China’s strategic shift. In the foreseeable future, Australian exports to China may increasingly be settled in RMB rather than USD.
Countries exporting commodities to China, particularly iron ore, should prepare for increased use of RMB in trade settlements. Brazil, for instance, has adopted RMB payments, which it can reinvest in infrastructure projects, such as the Transoceanic Railway. This shift may encourage other nations, particularly the emerging economies, to adopt RMB-based trade to develop new infrastructure projects.
Over the past four decades, China’s rapid economic growth has prioritised overall growth over profitability, which resulted in the "race-to-the-bottom" competition (内卷) across different industries. To address this, China has been amassing bargaining power for decades before today, where the state is assertively restructuring its supply chains, both domestically and internationally.
A great example would be the steelmaking industry. China has long been obsessed with the production of steel to support its industrial development. With government support, they have a steelmaking industry with net profit margin of 0.41% but accounting for roughly 54% of global output. Decades of unsustainable business practices in the steelmaking culminated in China's halt in USD-settled transactions with BHP. China now believes it has the bargaining power to negotiate new terms.
For other nations, particularly relying on exporting resources, China is effectively their sole significant buyer, rendering diversification of their client base economically unviable. They will adapt to settling transactions in RMB and a stronger bond to the Chinese economy.
Photo: Xinhua (2022)