Mainland Firms Bet on Magnetite Ore

Traditionally, the main type of iron ore sourced by steelmakers has been haematite ore. The main reasons for this are that it has a relatively high content of iron – about 61%, and because it is convenient – in fact, it is known as a ‘direct shipping ore’ (DSO) because, after mining, only a simple crushing and screening process needs to be conducted before export. In contrast, magnetite ore is only 36% iron and hence, must be upgraded into pellet form (in order for it to be suitable for steelmaking) – a process that adds $15 per tonne to costs.

However, in countries like Australia that are relatively close (geographically) to Asia (particularly China), such extra costs are worthwhile because of the savings made on shorter shipping journeys than routes which source ore from South America. Some of China’s largest steel firms are backing projects that will deliver 25 million tonnes of magnetite ore in the next two years compared with 3 million now. If more players join in, the outcome could be a reduction in reliance on large haematite-mining firms like Rio Tinto and BHP Billiton as well as the loss of competitiveness of South American ore in China’s market. The planned merger of giants Rio Tinto and BHP Billiton (which would make them a near monopoly in the iron ore industry) will act as a further incentive for Chinese firms to explore magnetite as a viable alternative.