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ESG metrics across the Australian industry are extensive and sweeping. Federal legislation such as the Environment Protection and Biodiversity Conservation Act 1999 and the Native Title Act 1993 govern environmental and social aspects of mining. State legislation has a similar ambit on a smaller level, while the National Pollutant Inventory tracks the environmental impact of corporate activity.
In addition, sustainability corporate reporting is recommended via the Global Reporting Initiative, the Corporations Act 2001, the ASX Corporate Governance Principles and Recommendations and the Task Force on Climate-Related Financial Disclosures.
Australia is also a member of the Sustainable Critical Minerals Alliance, whereby all member states voluntarily work on developing sustainable and inclusive mining practice. The Minerals Council of Australia similarly provides a framework for sustainable practice, which encourages adherence to the International Council on Mining and Metals’ 10 Principles of Sustainable Development.
Undoubtedly, the Australia’s ESG backdrop is convoluted and poses a challenge for corporations. Despite this, the mining industry remains central to Australia’s economy, accounting for 13.6% of total gross domestic product in 2023.
According to Australia’s Department of Industry, Science and Resources, commodity export earnings totaled A$400 billion ($260 billion) in the financial year 2023-2024, down from A$467 billion the previous year.
In the financial year 2024-2025, the department estimates revenue will slump to A$352 billion.
Iron ore, aluminium ores and concentrates, lithium and nickel are all key commodities to Australian industry – and many are also fundamental to the global energy transition.
In 2023, iron ore exports totaled A$136 billion, far and above the highest earner for Australia. Meanwhile, bauxite and alumina – the raw materials used to make aluminium – generated A$9.8 billion, the eleventh largest export that year.
Australia is also the world’s largest lithium producer with more than 50% of the world’s lithium on a lithium carbonate equivalent (LCE) basis produced in the country, primarily in the form of spodumene – the key raw material for the production of battery-grade lithium hydroxide and carbonate. But its dominance is being challenged by rising production in countries such as China.
In nickel, though Australia makes up only a small percentage of global refined nickel production as a whole, it is an important part of the class 1 nickel market where it accounts for around 9% of global production now that BHP has announced the suspension of its Australian operations.
Australia’s mining dilemma lies in how it can reconcile its commitment to ESG with the need to profit from its vast, rich resources, especially because new players – that hold promises of cheaper prices – threaten to overtake.
ESG strategies are becoming increasingly important, with higher standards required to successfully move toward net-zero greenhouse gas (GHG) emissions. But the challenge for major Australian iron ore miners lies in having to reduce their emissions while maintaining and ramping up production, sources told Fastmarkets.
Australia iron ore miners Rio Tinto and BHP share the ambition of net zero operational GHG emissions by 2050 (Scope 3). Rio Tinto aims for a 50% reduction in emissions in 2030 (Scope 1 and 2), while BHP has goals of cutting at least 30% by 2030. The third largest iron ore miner, Fortescue, has committed to eliminating approximately 90% of emissions by 2030 and aims to achieve net zero Scope 3 emissions in 2040.
But there is no single decarbonization pathway for Australia iron ore miners, especially given their ongoing brownfield and greenfield iron ore projects.
Renewable energy, either directly via on-site power plants or through purchasing power, electric mining vehicles and cooperating with steelmakers towards finding new steel making technology, are currently the main plans for decarbonization amongst Australian iron ore miners.
Unlike China’s decarbonization method of cutting crude steel output and restricting new steelmaking capacity, Australian iron ore miners are working to maintain or increase production in the short term, despite the potential of increasing ESG-related investment or cost.
For example, Rio Tinto, the largest iron ore miner in Australia is on track to advance the Pilbara mine replacement study, is set to make good progress on Rhodes Ridge pre-feasibility study that has a capacity of 40 million tonnes per year and is preparing to complete 70% of construction on the West Range mine, according to the company’s quarterly report released on July 16.
BHP also showed a strong iron ore performance in the 2024 financial year (July 2023-June 2024), delivering the second consecutive year of record production, according to the company’s year-end report published on June 30. BHP also increased its yearly iron ore shipment guidance to 255-265.5 million tonnes in the 2025 financial year, with a medium-term goal of increasing production by 17% to 305 million tonnes annually.
Another Australian mining giant, Fortescue, with annual iron ore production guidance of 192-197 million tonnes for the 2024 financial year, also started the new Iron Bridge mining project production and shipment in December 2023.
An Australian-based miner source told Fastmarkets that the cost of ESG plans would increase the overall capital intensity of projects, yet it appeared it was not currently calculated or directly reflected in the iron ore unit cash cost or pricing for major miners.
Some market participants added that despite the iron ore price dropping from $140 per tonne in January this year to $100-110 per tonne in July, major iron ore giants in the short term would keep current production levels steady to align with company objectives.
Australia iron ore giants have a lower cash cost compared to miners from other countries. Rio Tinto’s guidance for the 2024 calendar year Pilbara iron ore unit cash costs is $21.75-23.50 per tonne, and $17.40-18.90 per tonne by BHP’s 2024 financial year guidance, while Fortescue’s 2024 financial year cash cost guidance for hematite iron ore is $17-18 per tonne.
Iron ore prices declined gradually in 2024 amid sufficient seaborne supply and China’s soft demand. In addition, some market sources became increasingly more sensitive towards China’s stimulus measures and crude steel cut policy given the country’s decarbonization drive.
Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao, averaged $105.93 per tonne in July, down by 0.44% from $106.40 per tonne the prior month and down by 9.98% from May’s average of $117.68 per tonne.
Australia has arisen as a point of contention in the alumina market this year, with ESG the ever-present thread between a series of supply-side pressures.
In January, global aluminium producer Alcoa announced it would curtail its Kwinana Alumina Refinery in Western Australia (WA), citing high operating costs and challenging market conditions. In June, Kwinana officially stopped producing fresh tonnes, bringing an estimated 2.2 million tonnes out of the market annually.
Lost production from Kwinana’s shutdown will not be replaced by Alcoa within Australia.
“What you’re seeing is an aging asset base that requires a lot more capital – specifically sustaining capital to survive. That is getting harder to do, so you’re seeing more issues at refineries – things are breaking, more maintenance is required,” a market source recently told Fastmarkets.
The curtailment comes as Alcoa continues to produce lower grade bauxite at its WA operations and is expected to continue to do so until at least 2027.
Alcoa noted in its 2023 annual results that the production of lower grade bauxite led to a 13% drop in alumina production in 2023.
These raw material woes are part of the company’s long standing approval process for the development into new bauxite reserves. The state government officially granted its 2023-2027 Mining and Management Program (MMP) on December 14; however, Alcoa will need to reconcile with a range of stringent conditions addressing key environmental factors.
These include enhanced protections for drinking water, including increased distances from reservoirs, and biodiversity along with accelerated forest rehabilitation, as well as restrictions on the area permitted for clearing for mining in the Northern Jarrah Forest and an increase on the rate of rehabilitation.
The MMP remains subject to the WA Environmental Protection Authority (WA EPA) environmental assessment, which was confirmed on December 18.
The WA EPA finished their assessment of South32’s Worsley Alumina expansion to its operations on July 8, which determined that the Worsley Mine Development Project could commence in line with conditions that included limiting the clearing of native vegetation, ensuring no direct impact to threatened flora, limiting disturbance to local wildlife, among others.
In response, South32 stated in its fourth-quarter results on July 22 that “these conditions would “create significant operating challenges for Worsley Alumina and impact its long-term viability.”
Fastmarkets calculated its daily benchmark alumina index, fob Australia, at $487.36 per tonne on August 6, up by $136.83 per tonne (39%) from $350.53 per tonne on January 2.
An uptick in liquidity of other origin has been trading on the spot market this year, amid an insecurity of Australian supply following the curtailment of Kwinana, which was further exacerbated by Rio Tinto’s declaration of force majeure on third-party cargos due to a shortage of gas.
Expansion projects in Indonesia, Vietnam and India have further confirmed this trend away from Australia, easing some of its dominance in the market.
But with Australia still producing around 20 million tonnes of alumina per year, it remains to be seen when – or if – these countries can meet global demand.
Fastmarkets is proposing the launch of FOB Indonesia, Vietnam and India inferred indices for its Australian alumina index.
Australia is currently the world’s largest lithium producer due primarily to its large production and reserves of spodumene, a key feedstock for the production of battery-grade lithium salts, accounting for more than half of the world’s lithium supply.
Typically, Australian spodumene is exported from the country for refinement, primarily in China.
Spodumene produced in the country is often seen as the premium product within the market, due in part to the high ESG standards.
“Australian spodumene is typically our preference due to the good standards of reporting and transparency,” a consumer told Fastmarkets.
Despite this preference for spodumene from Australia among some consumers, Fastmarkets understands that others are looking to shift their reliance for spodumene from the country.
In recent years, production of spodumene in Brazil and China has increased, alongside significant capital investments into spodumene and lithium ore production in regions such as Africa.
This investment has primarily been driven by Chinese firms seeking alternative sources of material to reduce their reliance on Australian spodumene producers, with African spodumene typically transacting at lower levels compared to Australian and Brazilian cargos.
2023 and 2024 have been dominated by sharp declines in lithium prices globally, amid softer demand and improved supply globally, pressuring the margins of some producers within the country.
Spodumene prices have declined 30% since May 10, 2024, following a significant softening in the lithium salts prices. Compared to a year prior though, spodumene prices are currently down closer to 75%.
Amid the broader diversification in production of spodumene globally, as well as demand for materials that are produced in countries qualifying for the inflation reduction act regulations, companies have increased investment into the downstream processing of spodumene within Australia.
Major lithium producers Albemarle, Tianqi, SQM and Wesfarmers have all invested in conversion capacity within WA for spodumene, primarily into battery-grade lithium hydroxide.
But this also poses environmental challenges for producers with spodumene conversion producing significant tonnes of waste.
Grades of spodumene concentrate can vary significantly, but among Australian producers largely sit between 5-6%. This means, typically speaking, it takes around 7-8 tonnes of spodumene to produce 1 tonne of battery-grade lithium products.
The scale of the waste produced by this process means that companies often need to establish effective storage methods or find alternative uses for the waste product, such as in the construction sector for use in cement.
Strict rules around the storage and management of tailings in Australia can often impact the cost of production for producers in the country. This additional costs factors on top of already high labor and energy costs.
As a result, Australian producers typically sit at the higher end of the cost curve for lithium.
“In this current market, it’s hard to know where the floor in prices for spodumene will be because of the wide cost basis globally,” a lithium trader told Fastmarkets.
“However, it’s not hard to see that many of the Australian producers will struggle most in a low-price environment,” the trader added.
There are signs of some pressure already being felt within the market by producers.
As part of the company’s quarterly reporting on July 31, Albemarle announced that it would be halting construction of a third production line at its Kemerton lithium processing plant in Bunbury, WA, as well as placing its second production line on care and maintenance.
The company will continue to focus of the ramp-up and qualification of the first production line at the Kemerton plant.
These measures are part of a cost and operating structure review by the producer amid the current low-price environment.
But many other producers still remain competitive even at current prices, particularly on the spodumene side.
In their recent quarterly results, published on July 24, Australian spodumene producer Pilbara Minerals noted that their unit operating cost for the quarter was $591 per tonne on an FOB Australia basis.
Fastmarkets assessed the spodumene min 6% Li2O, spot price, cif China, at $850-880 per tonne on August 6, narrowing down from $850-900 per tonne the previous day.
And in battery-grade manganese sulfate, the economic and regulatory environment in Australia compared to China has stifled at least one new potential project in Australia, despite the incentives introduced by Western countries to promote the material’s production outside of China.
The supply of battery-grade manganese sulfate has been cited by market participants as a potential bottleneck for the transition to electric vehicles, with the overwhelming majority of the world’s battery-grade manganese sulfate production in China.
But in March, Peter Allen, the chief executive officer of Firebird Metals, which has manganese ore resources in Australia, told Fastmarkets that it was “logical” to process its ore into sulfate in China due to its cost benefits and regulatory environment.
Allen explained that the company considered producing sulfate in Australia, but that it did not find this prospect to be financially viable, and that China would also allow the company a quicker time to market, owing to a favorable regulatory perspective.
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