HI5003: Analyzing the Economics of Iron Ore Production in Australia

This report provides an economic analysis of the iron ore industry in Australia, focusing on production trends, supply and demand dynamics, and the impact of global factors like Chinese demand. It identifies key players such as BHP Billiton, Rio Tinto, and Fortescue Metals Group, and examines the effects of fluctuating iron ore prices on Australian businesses. The report also offers recommendations for key stakeholders, including the Australian government and iron ore companies, to address challenges related to demand imbalances and market volatility. It concludes by emphasizing the importance of diversification and strategic planning for ensuring the sustainability of the Australian iron ore industry. Desklib provides access to similar solved assignments and past papers.

HI5003
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Contents
Introduction................................................................................................................................3
Economic analysis......................................................................................................................4
Recommendations to key players...............................................................................................6
Conclusion..................................................................................................................................6
References..................................................................................................................................8
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Introduction:
Australia is second largest iron-ore mineral extractor across globe. The table presents the
production in million tonnes from 2003 to 2012. The production has increased by 144% from
2003 to 2012. The extraction of mineral ore is greater from one many of other countries and
is a major contributor for mining growth. As the table presents, Australia is a major supplier/
exporter of iron-ore and it exports major part of iron ore productions. Iron-ore is a mineral
which is found in rock and Australia has vast natural mines which extract iron-ore and iron-
ore is mainly used for making steel. Since, Australia extracts high quality iron-ore and is used
for exporting to varied countries specifically in China (Australian government, 2013).
The major companies which are involved in iron-ore extraction and development are BHP
Billiton, Rio-Tinto and Fortescue metals group limited. Apart from these organisations,
numbers of new organisations are also entering into this segment. Iron ores are founded in the
rocks of Hematite and Magnetite and requires use of large work force. Mining and extraction
requires people indulge in research and knowledge and have due expertise of such work.
Today, nearly thousands of human resources are involved and sub-contractors are involved
for hiring workers to work in extraction of iron-ore (Australian government, 2013).
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(Source: Australian government, 2013)
Economic analysis:
The following graph presents the supply of iron-ore. The graph simply presents that the
Australia trend is constantly increasing. Since, 2000-2014 the trend line has upward sloping.
Australian economy has boosted largely through mining and export of “iron-ore”. This sector
has contributed large economic factors GDP, employment, manufacturing instances and such
other factors. The major importers of Australian products are China. China has vast
requirements for iron-ore and its ingredients and is a major importer and foreign exchange
provider.
(Source: Scutt, 2015)
In the recent times, there is major downfall in demand of iron ore majorly through China. The
decrease in iron-ore demand has drastically decreased and affected Australian supply for
iron-ore. The decrease in price has drastically affected organisations manufacturing iron-ore
and also decrease in demand has affected workforce requirement in the organisation (Scutt,
2015).
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(Source: Lannin, 2017)
The above chart presents the iron-ore prices in Australian dollar for tone production. The
prices have suddenly decreased in 2016. With the decrease in china’s requirement for iron-
ore and steel production, there has been massive adverse effect over Australia’s iron-ore
manufacturing organisation. There was major dig in iron ore prices and also lead to reduction
of prices, profitability and revenues for the organisation. Big organisations who have largely
affected due to fluctuations in iron-ore demand through outside boundaries of Australia have
diversified their business and have put focus over other mineral resources (Lannin, 2017).
(Source: Donovan, 2014)
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The above chart presents the major supplier of iron ore in Australia. The major portion of the
iron ore is produced by Rio Tinto around 33% of the total production of iron ore is processed
by it and it is also major exporter.
Further, BHP is next organisation which sells around 27% of the total export. Next company
is FMG which makes contribution of 21% into the entire sector. These sectors employs
around large personnel through staff and workers and provides employment to metal ore
mining to around 71,700 people which consists around 35% of the total population. Iron-ore
extraction is human oriented segment which requires execution of human labour and
expertise and skills. Human resources are required to be developed and there is need to
provide effective labour expertise so that they can handle organisational processes (Donovan,
2014).
Recommendations to key players:
The key players in the field of iron-ore manufacturing are Australian government, foreign
issues has big organisations like BHP, Rin Tinto, Fortescue and many other small and
medium sized organisations are associated with it. With the downfall in the demand, the
organisation are facing crisis in terms of revenues and profitability.
Organisation need to make thorough research for domestic and other countries requirements
for iron-ore. Since, Australia has abundance of natural resource of iron-ore and thus, the
supply is high but there is need to make proper research for evaluating other demand level.
Otherwise, the organisations need to diversify their working.
Australian government need to revise its policies with regard to iron-ore extraction and also
must intermediate to balance the demand and supply of iron-ore. Since, the equilibrium has
become imbalanced and also has led to decrease in prices and adversely affected organisation
and made losses and reduced profitability for organisations. Government should enter into
free trade agreements with other countries which provide suitability to organisations for
selling of iron ore and also provides employability
Conclusion:
Australian economy has largely boosted due to vast natural resources of “iron-ore” which has
initiated establishment of many strategic organisations such as BHP, Rin Tinto, FMG and
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many others which has created large supply of products across globe. In the past few years,
there has been large demand for iron-ore and its materials, and major importer was China.
China has been increasingly interested into steel and iron-ore products.
But the demand for iron ore has recently dipped down which showed that there has been
drastic reduction in the demand. The reduction of demand of iron ore has adversely affected
the big and small manufacturing organisations and also affected customers (domestic steel
manufacturer) with regard to purchase of the products. This has concluded that the demand
for such products has drastically decreased and also has affected supply. As per the
recommendations, it can be assessed that organisations need to diversify their working and
also need to make research investigations which would determine the futuristic demand for
products.
Human resource plays critical role in the development and manufacturing of iron ore. The
extraction of iron ore extraction requires large number of personnel who works through
machineries and extracts the core iron ore and also further refines them for making iron and
further makes steel out of it. The iron ore industry develops large personnel for the
organisation.
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References:
 Australian government, 2013. Production. [Online] www.ga.gov.au. Accessed as on:
http://www.ga.gov.au/data-pubs/data-and-publications-search/publications/australian-
minerals-resource-assessment/production. Available at: 19th April, 2018.
 David Scutt, 2015. Just when you thought iron ore prices couldn't get any worse.
[Online] business insider.com. Available at: https://www.businessinsider.com.au/just-
when-you-thought-iron-ore-prices-couldnt-get-any-worse-2015-12. (Accessed as on:
19th April, 2018).
 Donovan, J., 2014. Investigating the market manipulation hypothesis in iron ore.
[Online] ausimmbulletin.com. Accessed as on:
https://www.ausimmbulletin.com/feature/investigating-the-market-manipulation-
hypothesis-in-iron-ore/. Available at: 19th April, 2018.
 Lannin, S., 2017. Iron ore: Small miners under big pressure if iron ore price falls.
[Online] abc.net.au. Available at: http://www.abc.net.au/news/2017-04-05/small-iron-
ore-miners-under-pressure-from-price-fall/8413474. (Accessed as on: 19th April,
2018).
 The University of Queensland, 2017. Minerals demand requires global approach.
[Online] uq.edu.au. Available at:
https://www.uq.edu.au/news/article/2017/03/minerals-demand-requires-global-
approach. (Accessed as on: 19th April, 2018).
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