Most of the attention in Australian markets this week is on inflation and the RBA. A quieter story has been running underneath it, and I think it deserves more attention than it gets. Iron ore is still earning Australia a great deal of money, but the terms on which it is sold are getting tougher. China is buying more carefully, its steel industry is shrinking, and new supply is starting to arrive.
What happened
Over the past week, China's state iron ore buyer reached a supply agreement with one of the largest Australian miners, after telling some Chinese steel mills in August to stop negotiating with it for September cargoes. Another major producer settled a similar dispute in April, reportedly agreeing to use several pricing indexes and accept small discounts. A third is still negotiating, and on 22 October it warned that its operations may be affected if talks are not concluded by the end of the year.
The buyer, China Mineral Resources Group, was set up in 2022 to sit between miners and Chinese mills. Its aim is plain enough. China buys about 75 per cent of the world's seaborne iron ore and Australian miners supply around two thirds of its needs. Beijing wants more say over price and contract terms, and a Reuters column this week concluded it is having some small success in getting better terms.
What the numbers say
Prices have drifted lower. The benchmark Singapore contract ended at US$90.60 a tonne on 23 October, down 19 per cent from this year's peak of US$111.91 in May.
Demand looks softer than the import figures suggest. China imported about 955 million tonnes in the first nine months of the year, up 4.1 per cent, but steel production fell 2.9 per cent over the same period. Much of the extra ore has gone into stockpiles, with port inventories around 152 million tonnes, about 14 per cent higher than a year ago. Daily hot metal output, a good guide to how much ore mills are actually using, fell to its lowest level since late March in the week to 22 October.
Supply is also changing. The Simandou project in Guinea, designed for about 120 million tonnes a year, reached a production run rate of around 10 million tonnes a year in the September quarter. That is small today, but it is the alternative source China points to when it talks about diversifying, and as it grows it gives the buyer more leverage.
Why it matters for Australia
Iron ore is still one of Australia's largest exports, at more than a quarter of all resource and energy export earnings. The Department of Industry's September Resources and Energy Quarterly forecasts iron ore export earnings of $107 billion in 2026/27, down from $123 billion last year, and a further decline to $79 billion in real terms by 2030/31. It points to lower prices, easing volumes, falling ore grades and a stronger Australian dollar.
The useful context is that the budgets were built for worse. The federal budget assumed iron ore would fall to US$60 a tonne, on a free on board basis, by the end of the March quarter 2027. Western Australia assumed US$85.20 a tonne for this financial year and US$72 after that. Prices around US$90 are still above both, so revenue is holding up better than planned for now.
The sensitivity is large. Western Australia's budget papers estimate that each US$1 a tonne change in the iron ore price moves state royalties by about $93 million a year, and each one cent move in the Australian dollar against the US dollar moves royalty income by about $144 million in the opposite direction. The dollar was around 70.3 US cents on Monday, close to the federal budget's assumption of around 70 cents.
Why it matters for property and credit
The link to property is indirect, but it is there. Commodity income supports national income, company tax receipts and the state budgets that fund infrastructure and housing programs. In Western Australia, it also supports employment and rental demand in mining regions. When prices and terms soften slowly, the effect tends to show up first in budget updates and capital spending decisions, well before it appears in housing.
I do not read this week's news as a crisis. Australia's ore is still needed, and China cannot replace it quickly. What I see is a steady shift in bargaining power, and a reminder that a large part of Australia's income rests on one product sold mostly to one buyer.
What I am watching
I am watching whether the remaining supply talks conclude before the end of the year, whether Chinese steel output keeps falling into 2027, and how quickly new supply ramps up. I will also watch the federal mid-year budget update for any change to its commodity assumptions, and the Australian dollar, since a stronger dollar reduces what each tonne earns in local currency.
None of this is a recommendation to borrow, lend, invest or sell. Everyone's position is different.
Sources
Reuters via Mining.com.au, Iron ore steady as China demand weakens (26 Oct 2026)
Department of Industry, Science and Resources, Resources and Energy Quarterly September 2026
Australian Government, Budget 2026-27 Budget Paper No. 1, economic outlook assumptions
Government of Western Australia, 2026-27 Budget Paper No. 3, Economic and Fiscal Outlook
ABC News, Markets live, 26 October 2026
GuineeBusiness, Simandou's Q3 ramp-up, production pace is not export revenue (21 Oct 2026)
Personal views, not financial advice.
Key questions
What is happening to iron ore prices in October 2026?
The benchmark Singapore iron ore contract ended at US$90.60 a tonne on 23 October 2026, down 19 per cent from this year's peak of US$111.91 on 11 May. Chinese steel production was down 2.9 per cent in the first nine months of 2026, while China's port inventories of iron ore were about 14 per cent higher than a year earlier.
What is China Mineral Resources Group?
China Mineral Resources Group is a state-controlled buyer set up in 2022 that sits between iron ore miners and Chinese steel mills. It has used restrictions on purchases from individual Australian miners during supply talks, which market participants see as an attempt to gain more control over prices and contract terms. Two of the large Australian producers have now reached agreements with it, and a third is still negotiating.
How much does iron ore matter to Australia's economy?
The federal Department of Industry, Science and Resources forecasts iron ore export earnings of $107 billion in 2026/27, down from $123 billion in 2025/26, and still more than a quarter of all resource and energy export earnings. In Western Australia, each US$1 a tonne change in the iron ore price moves state royalty income by about $93 million a year.
Is iron ore above the federal budget assumption?
Yes. The 2026/27 federal budget assumed iron ore would fall to US$60 a tonne, on a free on board basis, by the end of the March quarter 2027. Market prices quoted in October 2026 are around US$90 a tonne on a delivered basis. The two measures are not identical because one excludes freight, but the gap is still wide.
Share this article
The right
conversation
changes things.
For advisory engagements, commercial opportunities and international collaboration, get in touch directly.
Start a conversation