Western Australia's leading lithium position at risk, tariffs threaten iron ore: government

Australia's world-leading status in lithium production is at risk in the coming years, while tariffs could jeopardize demand for its iron ore, according to the government in Western Australia.

Total royalties in the resource-rich state are expected to rise by A$1 billion (US$655 million) in fiscal 2026 (July 2025-June 2026). This will be mainly courtesy of iron ore, which dominates Western Australia's export profile, and whose royalties are set to increase by A$794 million that year, according to State Budget data released June 19.

Those iron ore royalties are set to decline from $A10.36 billion in fiscal 2024 to A$6.62 billion in fiscal 2026, before falling further to A$5.77 billion in fiscal 2029.

While royalty payments totaling A$77.8 billion over the past seven years reflect "a resilient iron ore price and record prices for gold," this is also "masking the very challenging conditions facing nickel and lithium producers," the Chamber of Minerals and Energy of Western Australia (CME) said in a June 19 statement.

Western Australia's government has slashed its lithium royalty expectations for fiscal 2025 onwards compared to expectations in the previous year's budget. Lithium royalties are now expected to plummet from A$563 million in fiscal 2024 to A$286 million in fiscal 2026, then fall further to A$520 million in fiscal 2029.

This is in stark contrast to the fiscal 2025 budget's expectation that lithium royalties would rise from A$422 million in fiscal 2024 to A$623 million in fiscal 2028.

"Australia's lithium production is expected to continue growing over the forecast period, although at a slower pace than previously anticipated, primarily due to revised assumptions around the restart of mines currently in care and maintenance, given continuing low prices," the budget said.

"Australia's share of global lithium mine supply is projected to fall from 32% in 2024 to around 27% by 2029, as production accelerates in Argentina and Brazil, supported by government policies."

Lithium royalties falling by 80% over the two years to fiscal 2025 reflects "the sharp fall in prices" which have "retreated rapidly from the peaks achieved in late 2022 as a result of increased supply and slower than expected electric vehicles sales in key markets," Anita Loguidice, CME's policy and advocacy director, told Platts in a June 24 email.

The State Budget also suggested Western Australia's spodumene, which is a feedstock for lithium hydroxide, could be at risk from the rise of low-cost, high-energy lithium iron phosphate (LFP) batteries in China that contain lithium carbonate.

"This has reduced the demand for lithium hydroxide, which is traditionally used in nickel-manganese-cobalt batteries. As LFP battery production expands globally, demand will be weighted toward carbonate, raising the risk of hydroxide oversupply (including spodumene feedstock), especially since most investments outside China, including in Australia, focus on hydroxide," the budget said.

The International Energy Agency expects lithium demand to grow five-fold by 2040, and on current supply estimates there will be a 40% shortfall by 2035, Loguidice noted.

CME has advocated for temporary and targeted support to help lithium producers trade through the current downcycle, while continuing to "monitor the evolving situation and will consider calling for additional support measures, such as royalty relief, if required," Loguidice said.

Western Australia's government responded to low prices in November 2024 with a A$150 million lithium industry support package, which included A$90 million to partially waive government fees to support downstream lithium hydroxide producers, capped at A$30 million per producer. It also included A$50 million to establish a temporary interest-free repayable loan facility to all lithium miners, and A$9.4 million to waive port and mining tenement charges for projects in their ramp-up phase.

While the government had not responded immediately to provide the lithium price assumptions or production estimates underpinning these estimates, the lithium carbonate CIF North Asia price is expected to rise from US$8,894/mt in 2026 to US$10,307/mt in 2029. Yet the oversupplied market will not flip into deficit until 2033, according to a June 18 note from S&P Global Commodity Insights' Metals and Mining Research team.

The Platts-assessed Lithium Spodumene 6% FOB Australia price was US$590/mt on June 25, down from US$990/mt a year prior.

Risks to iron ore demand

The budget envisages Western Australia's iron ore production rising from 866 million dry metric tons in fiscal 2024 to 886 million dmt in fiscal 2028, before edging down to 885 million dmt in fiscal 2029.

Those royalties were calculated assuming the CFR iron ore price declining from US$119.40/dmt in fiscal 2024 to US$72/dmt in fiscal 2027 where it is set to remain as the long-term outlook out to fiscal 2029. It also assumes an increasing US$/A$ exchange rate from fiscal 2026 to fiscal 2029.

"A decline in US demand for Chinese steel-intensive goods -- due to higher tariffs -- could weigh on China's steel output and, in turn, reduce demand for Western Australian iron ore. China currently produces around 1 billion [metric] tons of steel each year with around 20-25% of its total output tied to global export markets (either directly or embedded in finished goods)," the Budget said.

Yet the budget expressed confidence that Western Australia's "competitive position is underpinned by the relatively low cost of most of its iron ore production," with a "solid pipeline of current and prospective projects."

Supply out of Brazil and Africa is also set to increase over time amid softening demand, with steel production forecast to decline from China, which received 85% of Western Australia's iron ore in the year to March 2025, according to the budget.

"Steel market sentiment is fragile pending clarity around the relationship with the US, while demand in key sectors such as property remains lackluster," Commodity Insights' Metals and Mining Research team said in a June 18 note.

Global iron ore production is also set to increase from an estimated 2.48 billion mt in fiscal 2024 to 2.64 billion mt in fiscal 2029, according to a June 13 note from the Commodity Insights team. The 62% Fe CFR price is set to decline from US$109.6/dmt to US$82/dmt over that time, before recovering to US$95/dmt by 2035.

The Platts-assessed IODEX CFR China 62% Fe price was US$92.75/dmt on June 25, down from US$103.75/dmt a year prior.