Macquarie: Surging Fuel Costs Drive Changes in Iron Ore Profit Margins

LootboxPhobia · 2026-03-25T02:56:31+00:00

Macquarie analysts noted that the Iran conflict has driven up fuel prices, increasing costs for iron ore producers, with DSO operators seeing approximately 15% increases and concentrate producers around 6%. Rising diesel prices impact costs, and increased freight rates further strengthen the competitive advantage of Australian miners. BHP and Fortescue will benefit from this, while Mineral Resources warrants monitoring for cost impacts.

LootboxPhobia

2026-03-25 02:56:31

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Investing.com – Macquarie analysts say that after the Iran conflict, rising fuel prices have increased the costs for iron ore producers, with direct shipping ore (DSO) operators facing about a 15% cost increase, while concentrate producers’ costs have risen by approximately 6%.

Disruptions in crude oil and refined fuel trade flows have raised concerns about fuel supply, pushing up the cost base for the iron ore industry. Macquarie’s bottom-up modeling shows that, based on data from the second half of 2025, the correlation between DSO assets and diesel prices is between 12% and 17%, while for concentrate producers, it is between 7% and 9%.

Average spot diesel prices in Australian dollars, Canadian dollars, and Brazilian reais have increased by about 65%, 13%, and 28%, respectively, compared to the second half of 2025. The local currencies have appreciated against the US dollar, with the Australian dollar, Canadian dollar, and Brazilian real rising by 6%, 1%, and 7%, respectively, since the second half of 2025, driving up dollar-denominated C1 costs.

Rising costs for marine fuels have led to higher freight rates. Since the seaborne iron ore market is mainly settled in China, the freight gap between Brazil and Western Australia has widened, giving Australian miners a freight advantage of about $6 per wet metric ton.

Disruptions at Middle Eastern pellet plant operations and high natural gas prices have increased the premiums for lump ore and pellets, raising the realized prices for Macquarie-covered companies.

Macquarie states that BHP (ASX:BHP), with its low-cost DSO high-quality resources, is expected to benefit from the current dynamics. Fortescue (ASX:FMG) could be the biggest winner, as it has adopted more advanced methods for diesel substitution, potentially saving $3 to $6 per ton in its cost base based on diesel prices. Mineral Resources (ASX:MIN)’s Pilbara hub assets are most affected, but some of its costs are absorbed through CSI revenue.

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