Those joining us today in Perth, good afternoon, everyone. I also extend a very warm welcome to those joining us via webcast. I understand that many of you have busy schedules, and some have traveled pretty long distances to join us. By way of introduction, I'm Brandon Craig, the Asset President for BHP's Western Australian Iron Ore business, or what we more commonly refer to as WAIO. I've been with BHP for close on 23 years now, mainly in operational leadership roles across various commodities, with my earlier years in aluminum and nickel, and more recently in metallurgical coal and now iron ore. We have a great team here in WAIO, a team fully committed to safe ways of working, laser-focused on improving productivity, and delivering exceptional results for our shareholders and our stakeholders.
Our people are the heart and the soul of our business, and are the driving force behind the outstanding results that we deliver. We have really been looking forward to hosting this visit, and sharing with you an update on our business, as well as sharing more about the achievements of our people and teams, something that we are very proud of. Before we begin today, I would like to acknowledge and pay my respects to the Whadjuk Noongar people who are the traditional custodians of the land and waterways on which we meet today. I would also like to acknowledge and pay my respects to the Kariyarra, the Banjima, the Nyiyaparli, the Palyku, and Nyamal people who are the traditional custodians of the land on which WAIO operations are located across Western Australia.
I pay my respect to the elders both past and present, and to the emerging leaders, and extend that respect to other Aboriginal and Torres Strait Islander persons, both present and online today. Since leading WAIO, I've spent a lot of time on country with traditional owners, including elders, talking to them and hearing from them their stories about the things that are most important to them. I've been personally interested in this and fascinated by what I've learned, especially in relation to the richness of Indigenous culture and heritage that exists in the Pilbara, and the absolute importance of our role in helping to protect it. I'll talk more about this a little later in the presentation. I'm looking forward to today's discussion.
I'll take you through an overview of our WAIO business, including some of our outstanding productivity improvements and achievements delivered through our operating system and the capability of our teams. Anna Wiley, our Vice President, Planning and Technical, is also joining me today, and will talk shortly about our decarbonization initiatives. After a short break, Huw McKay, BHP's Chief Economist, and Rod Dukino, the Vice President of Sales and Marketing Sustainability, will provide an update on our outlook for iron ore and steel, our latest views on steel decarbonization pathways, and how our partnerships are helping to progress this. We'll then have a joint Q&A session where we will be joined by our Head of Finance for WAIO, Kristy Heal.
Tomorrow, we'll head to our newest mine at South Flank, where you'll hear from Steve Campbell, the General Manager, and Andrew Buckley, the General Manager for Mining Area C, on how we've delivered this $3.6 billion project, as well as our future plans. On Wednesday, we will travel to Port Hedland, which is home to our rail and port operations. There's Cindy Dunham, the General Manager of port, and Warren Wellbeloved, the General Manager of rail, will share in more detail information around our debottlenecking programs, both planned and underway. Of course, Warren, Cindy, Steve, Andrew, and Kristy are just a few of our senior leadership team here in WAIO, all of whom have broad and significant experience in mining and minerals processing across functions, commodities, and the global supply chain.
The team brings together a large-scale workforce, which has established a strong track record for WAIO as a consistent and reliable low-cost producer of high-quality iron ore. For those of you who are less familiar with our WAIO business, let me give you a quick snapshot. Like every operation within BHP, in iron ore, safety is our highest priority. As you'll see throughout this presentation, and for those who will be traveling to South Flank and Port Hedland, safety is fundamental and essential to the way we work. In WAIO, we have a strong safety culture and track record. We constantly ask our people to think and talk about safety, to deeply understand the risks and the controls, to take the time to get the basics right, and always maintain safe ways of working. Nothing is more important than that.
Our people are critical to our success, and we have a large-scale workforce of around 8,000 full-time employees and more than 1,000 contractors. The culture and capability within our teams is our strength, and together with our structured operating system, reliable assets, and extensive infrastructure, we are able to deliver outstanding results. Here are some statistics to give you a sense of the size and scale of our business. Our operations are based in the Pilbara region of Western Australia. With our port located approximately 1,600 kilometers northeast of Perth, and our nearest mine at Newman, almost 1,200 kilometers northeast of Perth. We have an integrated system of four processing hubs and five mines. Across our mines, we operate approximately 220 trucks, of which more than 30% are fully autonomous.
From there, we transport iron ore across our rail network, which comprises around 1,000 kilometers of track to Port Hedland. On average, our trains are around 2.8 kilometers long, include 4 locomotives and have more than 260 ore carriages. At the port, we operate in two areas, Nelson Point and Finucane Island, from where we ship our high-quality product around the world, mostly to customers in Asia, with approximately 1 ship leaving Port Hedland every 6 hours. We have been operating in Western Australia for over 50 years. Over the last decade, we have demonstrated a track record in delivering reliable operational performance, which has provided strong cash flows to BHP. During this time, WA's production has increased by more than 50% while we've lowered our unit costs by approximately 40%.
We've delivered on average $13 billion of EBITDA over that period at an average margin of 64%. A truly remarkable performance. On the back of strong operational performance and high commodity prices, in the 2022 financial year, these numbers were even more impressive, with WA contributing $21.8 billion in EBITDA, more than half of the group's total EBITDA at a margin of 71%. These strong financial results are also reflected in our return on capital, which was a massive 75% in the 2022 financial year. This asset is a great example how investments in large, long life, low cost expandable operations advantage BHP shareholders. These exceptional figures haven't happened by chance or by luck. They are the results of decades of hard work and planning.
You'll hear over the next couple of days, this is underpinned by our approach to operational excellence, the quality of our resources, and our focus on social value and financial returns. Safety and operational excellence go hand in hand. We are proud of our achievements in both, and we are in a strong position to build on this with our focus on continuous improvement. Combined with our large, high-quality resource base, this provides a strong platform to generate some of the best margins in our sector. As you've come to know and expect from BHP, everything we do filters through our capital allocation and social value frameworks, meaning that shareholder returns and value for both shareholders and our stakeholders is always front of mind. There are a number of critical strategic elements that guide the way we work and ultimately underpin our operational results.
These are represented in the outer circles on this slide, starting at the top and working clockwise. Our people and culture, our operating systems, our functional support model, the deep technical capability provided through our centers of excellence, and our approach to innovation and technology. How we bring our people and culture together with our systems, processes, and technology is setting us apart, unlocking potential and growing value. It's a mutually reinforcing system, and over the past decade, we've been laying these foundations across our business. Let's start with people and culture. We are focused on creating and supporting an inclusive, performance-oriented culture, and our experience is that diversity is driving better outcomes. In WA, we currently have approximately 29% female representation and approximately 11% of our workforce identifying as Indigenous, and we are actively working to increase diverse representation across our business.
We are also engaging and empowering our people to adopt a continuous improvement mindset, and as a result, we are reaping the rewards. Through the BHP Operating System, we have empowered our teams to participate directly in improving the work that they do, and we have reduced frontline supervisor spans of control to enable supervisors to spend more of their time, up to 75%, in the field with their teams. We have deployed standardized work across more than 2,000 maintenance activities, and in financial year 2022, we delivered productivity improvements of more than AUD 400 million. Through operation services, we have developed specialized teams across critical categories such as conveyor and bulk maintenance, and have brought almost 3,700 roles in-house.
Over the next 12 months, we expect more than 200 apprentices and 170 trainees to enter the FutureFit Academy. Upon successful completion of their programs, these graduates will be offered roles across the business, including iron ore. In addition, our functional support model, together with our centers of excellence, provide deep capability and allow us to problem-solve complex problems and sustainably improve. For example, through our maintenance center of excellence, we are driving sophisticated preventative maintenance strategies, which are the foundations of our reliability. The use of data and innovative technology is also driving strong productivity improvements and results across our business. By continuously capturing real-time data and performance, we are able to develop strategies and approaches to improve efficiency, not only within our asset, but globally.
At Newman Operations in South Flank, we've accelerated our autonomous haulage deployments, and this is creating more efficient, more productive, and safer operations. While still in implementation, you will see some of these autonomous trucks while visiting South Flank. We are also leveraging the Integrated Remote Operations Center, more commonly known as IROC, to optimize our supply chain. The center was introduced over 10 years ago to monitor and direct operations across the entire supply chain, with all operators working in concert from the same control room in Perth, 24/7, to solve problems faster and improve throughput. The integrated way we manage our supply chain is a significant enabler of value, allowing us to unlock significant additional capacity without the need for capital investment. At BHP, nothing is more important than safety, and that's certainly the case across our WAIO operations.
We've recently achieved 11 years without a fatality, the results of significant effort and focus over many years. Our lagging and leading safety indicators are also trending in the right direction with some big improvements in the past 5 years. The continued rollout of technology and automation across our business is also having a positive impact on our safety, including the Surface Mobile Equipment Anti-Collision program. We know from the safety performance at Jimblebar, autonomous trucks have resulted in 75% fewer collision incidents than at our non-autonomous mines. We are accelerating autonomy deployment across our operations. All our production drills across our four hubs are already fully autonomous. In line with our fleet replacement strategy, all haulage will be approximately 85% autonomous within the next 4 years, with Yandi the only exception as the site nears end of life.
These exciting next steps in our autonomous journey are expected to deliver further and significant safety, production, and cost improvements, as well as new job and development opportunities for people. With respect to COVID-19, the pandemic has undoubtedly challenged us, but the way our teams responded to the added controls and ways of working through the pandemic was something that we are very proud of. Not only did it keep our people and our community safe, but it enabled us to achieve record results. We continue to assess and escalate or de-escalate COVID controls as these are required. Of course, our strong focus on safety and health has also included our efforts to eliminate sexual harassment, racism, and bullying from BHP. Our position is clear. We want our workplaces to be safe and inclusive for all.
To achieve this, we are determined to do whatever it takes to eliminate these behaviors in our workplace. We have been working on this for some time, but know there is still much more to do. We continue to take strong action, investing $300 million in upgrades to security at accommodation villages, enhancing training programs, including for both leaders and for bystanders, and improving support services. In 2022, we participated in Western Australia's parliamentary inquiry into sexual harassment against women in the mining industry, and action has been taken to address the committee's recommendations. We are thankful to all our people and stakeholders for their ongoing feedback and recommendations. Their insights continue to inform our approach. Our commitment to social value is reinforced through BHP's new social value framework announced in June this year.
This framework sets direction, rigor, and discipline to our efforts across the six pillars on this slide. I wanted to discuss some of the elements of what social value looks like at an asset level in WAIO. In relation to decarbonization, WAIO is already one of the lowest carbon emissions intensity iron ore producers for seaborne iron ore. We have some exciting plans to further reduce operational greenhouse gas emissions, but I'll leave this to Anna to cover shortly. Our teams are progressing initiatives to further improve our environmental performance, including our air quality and dust emission initiatives at Port Hedland and Newman and water stewardship across the Pilbara. I'll talk in detail shortly on our focus on building partnerships with our Indigenous stakeholders and the importance of relationships based on trust and respect. Another important part of our framework is to help support thriving and empowered communities.
We utilize the services of 290 local businesses over the course of financial year 2022, including spending $61 million with small local businesses through the local buying program. We have partnered with Child Australia to help improve childcare services in Newman and Port Hedland and provided funding for Pilbara Aboriginal Medical Services, COVID-19 vaccination support, and other health initiatives across regional and remote communities. This support is helping create more services, local jobs, and training opportunities in Western Australia, particularly regional areas. Many of our Western Australian employees either live in or commute to regional communities who are nearby operations in the Pilbara. In WAIO, creating social value for the communities, governments, and partners that support us is a key focus area in our business. It's not only the right thing to do, it is essential to our business and creates a competitive advantage.
By considering the social, environmental, and economic impacts of the decisions that we make, we best position ourselves to create the most value. Earlier, I briefly spoke about the importance of spending time together with traditional owners and indigenous stakeholders to build understanding, respect, and importantly, strong, long-lasting relationships. For many years, we have been engaging and working with traditional owners to gain a deeper understanding on issues important to them, including heritage protection and land access, and we are continuing to incorporate this into the way we operate our business. We are currently working together on new cultural heritage management plans that modernize key structures in preparation for the incoming Aboriginal Cultural Heritage Act 2021 in Western Australia, and our processes and subsequent activities are already strongly aligned to this new act.
We want to do much more to build sustainable, profitable, and enduring partnerships with traditional owner and indigenous businesses across our operations. We are working hard at all levels of our business to make this happen. We also remain focused on increasing indigenous participation in our workforce and creating new entry pathways. We are working together to create opportunities for traditional owner and indigenous business to directly participate in supporting our operations. This is very important to them, and we are making it happen. This can be seen in our commitment to award more than AUD 300 million per year in contracts to indigenous businesses by the end of financial year 2024, up from AUD 140 million across 70 businesses in financial year 2022.
One particular example I would like to highlight is the maintenance of the semi-mobile crushing and screening plant at our Mining Area C site. This is Banjima people operating a Banjima business on Banjima country. We are also passionate about increasing the pipeline of contracts and helping support the growth of indigenous enterprise and innovation, and creating new opportunities for those businesses to support their own communities, something we believe indigenous business does best. We are pleased with our progress to date, and we'll be announcing a pipeline of contracts in the year ahead. Now to our operations. WAIO was favored with an amazing endowment. This includes 30 billion tons of iron ore resource, of which approximately 95% is concentrated within 50 kilometers of existing infrastructure.
With existing processing hubs having estimated average lives of between 40-60 years, this proximity underpins capital-efficient development options to continue utilizing this capacity, and we are working hard to establish the best and most efficient pathways to bring this ore to the hubs. Our hubs are big. To give an indication of scale, one of our larger competitors has around 10 to 12 hubs for 320 to 350 million tons per annum. We have four processing hubs, which today support a production level of approximately 290 million tons per annum, and we have announced our plans to progress to 300 million tons per annum. Our South Flank and Mining Area C operations will soon be one of the world's largest and most productive hubs at 145 million tons per annum alone.
This structural setting enables simpler, more standardized operations, a lower mine replacement cycle, industry leading sustaining capital efficiency, and unit cost benefits. At production levels exceeding 300 million tons per annum, an increase in sustaining mine development is required. We are continuing studies into mine expansion through crusher and conveyor infrastructure, including the possibility of wet processing infrastructure likely to be required at Newman to manage the increasing below water table ore. Studies are also underway as to what an increase to 330 million tons would look like, and we have a number of attractive options in the Central Pilbara. As well as being in close proximity to existing infrastructure, our resource consists of high quality, low impurity ore and a high proportion of lump.
Our average grade across the portfolio is approximately 61% iron, which will increase with the addition of South Flank as it ramps up. As part of our decision to reconsult with traditional owners, we have opened more areas of the mine and some short-term grade variability will be inherent through the mine ramp-up periods, which we have formally outlined as 3 years. We are also studying beneficiation at Jimblebar, with the aim of further improving the portfolio's grade with potential first production in the latter half of this decade. We already have the highest proportion of lump compared to our competitors at just under 30%, and this will increase to between 30% and 33% when South Flank is fully ramped up.
Lump is highly sought after in a decarbonizing steel industry as it increases the productivity of the blast furnace, therefore lowering the emissions intensity of steel production, and important to our shareholders, it also attracts a price premium. Our premium product, combined with strong customer relationships and technical expertise, has enabled us to achieve the highest price realizations in comparison to our competitors. In financial year 2022, we achieved approximately 98.5% of the Platts 62% benchmark. As many of you may recall, our last major project, Rapid Growth Project 6 or RGP 6, which included our inner harbor debottlenecking, Jimblebar expansion, and port blending and rail yard facilities, was delivered in 2013 and lifted WAIO nameplate capacity to 240 million tons per annum.
Since then, we have been systematically improving through productivity and debottlenecking of the supply chain through low cost, targeted, capital efficiency, capital efficient investments addressing rail mines and more recently at the port with our car dumpers. Despite COVID headwinds, this has enabled us to creep sales to above 280 million tons over each of the past 3 years, including a record 284 million tons last year. Today, we have a tightly coupled supply chain, extremely efficient, but with limited ability to sprint or manage major maintenance. While maintaining this efficiency, we are allocating capital throughout the value chain to unlock capacity and shift the bottleneck to the port, which is our designed bottleneck.
The slide shows where the bottlenecks are today, where they will move to at 300 million tons per annum medium term, and at a potential 330 million ton per annum rate. Broadly, to get from where we are today to production levels greater than 300 million tons per annum will take some investment in both the port and rail, as illustrated by the dollar signs inside the circles. These projects are underway, and you will see the port debottlenecking project number one works on your tour of Port Hedland. While still in study, we expect that getting to 330 million tons per annum will require additional investment in our mines and port and will most likely require an additional car dumper. However, as is always the case, our first lever is productivity, supported by our embedded systems and processes.
I'd like to touch on a few productivity achievements briefly. Across WAIO, we have more than 1,000 units of equipment, including 220 haul trucks. As shown in the top left chart, since financial year 2019, we have safely increased truck payload by 9% by introducing lightweight trays across our fleet, allowing trucks to carry additional tons per cycle. With a strong focus on improved equipment maintenance strategies developed by our maintenance and engineering center of excellence and more efficient ways of working, over the past three years, we have increased annualized truck hours by 6% to approximately 6,200 hours, as shown by the chart in the top right. As I showed earlier, we are also making good progress on automation with 190 trucks expected to be autonomous in the medium term.
Our autonomous fleet is achieving availability of 89% and haulage cost 20% below the WAIO average. Of course, as our mine footprint expands, our haul cycles increase, but our productivity improvements are more than offsetting the impact of this. We're also making great progress on unlocking additional capacity at our rail and port operations. Our rail reliability work program involving diagnostics by industry experts, the removal of high-risk welds on track, and targeted track renewal program has reduced track speed restrictions by more than 25% in the past 3 years, resulting in improved cycle times. Warren will speak to you more about rail and track speed restrictions on Wednesday. With our focus on productivity and continuous improvement, we've reduced the number of unplanned events at our car dumpers, therefore increasing reliability, as can be seen by the 13% improvement in rail pre-dump cycle times.
Standardizing work through the BHP Operating System has also enabled us to improve the efficiency of the rail port interface, and we are targeting further efficiencies in the medium term. At port in financial year 2020, we initiated a major maintenance program to lift performance, leveraging both our BHP Operating System and centers of excellence. Since then, our 5 car dumpers have undergone significant overhaul. This has lifted availability by an average of 5%, as well as resulting in a 31% increase in the number of days all 5 car dumpers have been online simultaneously. This is important because when in 4 car dumper mode, the car dumpers are the system bottleneck. Continuing with the success of this program, in quarter one of financial year 2023, we completed the major maintenance on car dumper 4.
Our relentless focus on productivity, our people, and our systems has positioned us as the lowest-cost iron ore producer. We have also consistently outperformed our competitors on price realizations, and this has underpinned our solid track record on delivering industry-leading margins and free cash flow performance. This means a greater contribution to the strong returns that our shareholders benefit from, as well as the strong group balance sheet. This performance underpins our ability to further invest in the business and grow value. The introduction and expanding use of technology and innovation across WAIO is a key lever for us to unlock the productivity potential within the system. In 2016, we started our remotely operated blast hole drilling program at Yandi, managed from the IROC. Today, we now have one of the biggest autonomous drilling fleets in the world with 26 rigs across our 5 operational sites.
Our autonomous haulage journey has delivered safer, more reliable, and productive operations, starting at Jimblebar in 2017 and expanding to Newman East in 2020. At South Flank, our autonomous fleet is growing with 10 trucks currently operating autonomously. In the year ahead, we'll convert the remainder of the South Flank haul truck fleet. Our Newman East operation is already fully autonomous. Studies are in progress to deploy automated trucks at Mining Area C and Newman West as we move towards having approximately 85% of the fleet automated by financial year 2027, capitalizing on the significant benefits of improved safety and productivity outcomes. I also wanted to touch on our rail technology project.
This project provides an option to replace our end-of-life signaling system and leverage technology that will shift our rail network from the current fixed block signaling system to a moving block, improving the safety and integrity of the system, and unlocking capacity by reducing the following distance between trains, increasing throughput along our rail network to the port. We are also currently trialing two automated ship loaders and have plans to transition towards becoming fully automated later this year. Once completed, these will be operated from the IROC. Cindy and Warren will expand on these when you visit the port on Wednesday. We recently announced our 300 million ton per annum medium-term target.
If I work backwards briefly through the supply chain, we are progressing our port debottlenecking project, which will be referred to as PDP-1, to increase port capacity through conveyor upgrades and new reclaimer and stockpiles. This will increase our port capacity from 290 million tons per annum today to greater than 300 million tons per annum, and is expected to be completed in 2024. The RTP project, which I touched on earlier, will support unlocking rail capacity with replacement of the end-of-life signaling system. At our mines, while Yandi will continue to provide supply chain flexibility for several more years, we also have the potential to use proximate ore bodies to support production at this run rate.
All in, we expect a relatively low capital intensity of between $45 and $60 per ton to get from where we are today to beyond 300 million tons per annum in the medium term at our mines and port. We are also studying options to expand to 330 million tons per annum, supported by the regulatory approval we've received from the Western Australian Environmental Protection Authority for our port operations. Right now, we are progressing a range of studies looking at what this would require, particularly at our mines and port, and we expect to complete those studies in financial year 2025. That said, at the port, we know we will likely need an additional car dumper, routes, and yard expansion, essentially shifting the bottleneck to the ship loaders. Inland, we may need to expand our mining operation footprint.
An increase of an additional 30 million tons per annum provides us with an opportunity to rethink delivery of both sustaining mines and growth requirements in the most efficient way, and our long life large deposits gives us that optionality. We're cognizant that we are ramping down production at Yandi, and that the existing hub infrastructure could also be utilized for future growth. This is not the only option we are exploring. We have also started to look at areas including Ministers North, Jinidi or Marilana, all deposits that are close to Yandi. We are also looking more closely at our Newman hub. For example, Homestead and East Ophthalmia, which would require wet processing facilities to unlock the grade benefits of these particular deposits.
Whether we have the ability to beneficiate ore to improve grade is an important consideration, and we know that quality will be key in the future as steel mills look to decarbonize. As always, any decision we make will take into consideration a wide range of factors, including the external environment and a full assessment through the capital allocation framework on how this investment would compete for capital. Now, I'd like to recap with a few points. We believe the size and quality of our Whyalla resource and its proximity to existing infrastructure provides a competitive advantage for BHP. Our people, culture, systems, and processes are improving productivity and delivering safe and reliable operations.
These elements are the driving force behind our performance as the lowest cost producer with the lowest sustaining capital intensity and highest price realization, which together consistently deliver strong margins and leading free cash flow generation per ton. Creating social value is deeply embedded in our approach. From the co-creation of plans with traditional owners, through to creating opportunities for small, local and regional businesses, to supporting the communities in which we operate. We will pursue the most efficient pathway to grow volumes over the medium-term, and these investments will compete for capital through the group's capital allocation framework. We've had an outstanding few years in WAIO, and I'm even more confident about what we can achieve going forward with the plans we have for the future. I'd now like to hand over to Anna, who will take you through our decarbonization plans.
Thanks, Brandon, and good afternoon, everybody. For those of you I haven't had the chance to meet before, let me just take a minute to introduce myself. I've been working in the mining industry for just over 20 years in a wide variety of roles, including capital projects, corporate finance, and operational general manager roles in both copper and iron ore. For the last five years, I've been with BHP, initially as head of asset management in our global maintenance function, before commencing in my current role as Vice President, Planning and Technical, Minerals Australia, a little over a year ago. While working in asset management, I had accountability for, among other things, a life of asset planning, maintenance systems, and our mobile fleet strategy globally for BHP.
In my current role, my broader team is responsible for preparing our next generation of operating sites, completing early phase studies, approvals, managing our land tenements, leadership of our heritage teams, and delivering on our decarbonization commitments. It's this final area of decarbonization that I'm excited to have the opportunity to speak to you today. Over the next 15 minutes or so, I'm gonna run you through an overview of WAIO's greenhouse gas emissions pathways. More information on our power purchase agreement we recently signed at Port Hedland. How we are using our gas-fired power station, Yarnima, to provide low-emission firm power for our mines in the Pilbara. How we plan to transition away from this gas to renewable power. How we are working closely with our equipment manufacturers across rails and mines to trial new technologies to eliminate the use of diesel.
Before we dive into WAIO and the detail that's on this slide, let me recap on BHP's plans as a whole. Reducing greenhouse gas emissions is a key component of our climate change strategy and 2030 social value scorecard. In 2020, we set a medium-term target to reduce our group operational emissions by at least 30% from the 2020 levels by FY 2030. We also set a long-term goal to achieve net zero operational emissions by 2050. We will significantly reduce greenhouse gas emissions on a global scale. To do this, we need to take on one of the most challenging transformations our industry has ever seen and address problems that have yet to be solved. WAIO and our WAIO assets will play a big part in this transition. Overall, WAIO accounts for around a quarter of BHP's total greenhouse gas emissions.
The sources of these emissions differ from the rest of BHP Group as a whole. I'm sure you will have seen previous charts we've released. In FY 2020, roughly 40% of BHP's total group emissions came from electricity, 40% came from diesel, and 20% from other sources. At WAIO, it's 10% from the electricity we purchase, 15% from the natural gas we use to generate our electricity, and 75% from diesel. As many of you will know, it's currently much harder to reduce our emissions from diesel than it is from electricity. That is why our decarbonization pathway here will be nonlinear and will be heavily reliant on the technology development. We can't just make small incremental gains.
We need to completely transform our mining operations through a highly integrated abatement program, closely following the technical maturity of each component of the strategy. Furthermore, as Brandon spoke about earlier, options are being studied to increase production at WAIO over the coming years, meaning that structural abatement solutions will be vital to make sure we account for any additional emissions that we will incur. Moving on to the slide, you can see that our decarbonization plan at WAIO has three focus areas. The darker shaded bars are indicative of the timing of each of these phases. The first phase is to decarbonize our purchased electricity supplies at Port Hedland. This is a relatively low-risk step that can be achieved in a capital-efficient manner by leveraging commercial solutions such as power purchase agreements. The second is to increase the renewable power sources available to our Pilbara operations.
The third is to eliminate the emissions from diesel by electrifying our truck and locomotive fleets. This last step not only requires us to completely change our fuel source and the delivery network around it, but this transformation will significantly increase our electricity demand. Eliminating diesel becomes an even more complex task when you consider the technology is not yet commercially available. We are working in close partnerships with our OEMs to test and develop new technologies for this, but the lead time for this implementation is long, and we have large fleets. I will talk about both more on both of these later in the presentation. Our plan represents a balance between rapid implementation of renewable energy and advancement of diesel displacement in a way that preserves optionality and sets us up to achieve net zero emissions by 2050. It is aspirational but achievable.
That's where we're headed. We're also starting from a very strong place. Like many of BHP's assets, WAIO is already one of the lowest carbon intensity emitters among our global iron ore competition. That's how much carbon we emit per units of production. We are bottom quartile, as you can see in the chart here, and this position is highly influenced by the world-class resources, a highly efficient gas power generation, and our proximity to infrastructure. While it's encouraging, it will not change our ambition. Let's move on to how we're gonna achieve these ambitions. As I mentioned earlier, understanding our power supply and demand is essential. The power consumption in WAIO can be split into two areas that can be seen on the map here. In the north at Port Hedland are port operations.
These account for approximately 10% of WAIO's operational emissions and are connected to the Northwest Interconnected System, or NWIS. In the Pilbara, our mining operations account for around 15% of WAIO's operational emissions, and these are an islanded network. Being connected to a grid at port allows for a simpler commercial pathways to decarbonization, so I'll start there. In September, WAIO signed a power purchasing agreement, or what we also term a PPA, with Alinta to purchase 100% of the energy we produce, the energy produced by a solar farm that will be constructed near Port Hedland, and which will be operational by the end of 2024. This solar battery hybrid project is expected to be the first large-scale renewable facility at Port Hedland and will support the expansion of the renewable energy industry in Western Australia.
Once completed, it will supply 100% of the forecast average daily energy requirements at the port. The remainder of our power will come from an integrated battery energy storage system and gas power station facilities. The PPA will halve the Port Hedland emissions based on current demand compared to FY 2020. It also offers cost savings and will provide optionality to improve network redundancy and maintain firm power supply. To achieve net zero at Port Hedland, which we would like to do by 2030, we will need more renewable generation within the grid. To accelerate this, we have entered into a memorandum of understanding with Alinta in relation to the Shay Gap wind farm, with a potential first generation date of 2027. Now let's look at powering our mines in the Pilbara.
The Pilbara, as I mentioned, the Pilbara is an islanded network, and the power for our WAIO mines is generated at our Yanuma power station. It is a highly efficient open-cycle gas turbine power station with 190 MW of capacity. It also produces power on a relatively low-emissions basis, emitting 40% less kg of carbon dioxide per MWh than the Australian average, and, as the chart on the left shows, significantly less than our competitors in the Pilbara. Our mining operations require a reliable, consistent base load of power with the flexibility to meet variable peak power demand as required at different times. Yanuma' s critical for us in the midterm to support our journey to renewable energy. It will be able to supply our base load power 24 hours a day, 7 days a week.
It is a very attractive option due to its high efficiency and relatively low emissions. Today, the power demand from our Pilbara operations is approximately 150 MW. As I mentioned earlier, this will need to increase significantly to support electrification of our mines and rail network. By 2040, we will need a peak power demand of around 1 GW, approximately 900 MW more than we have today. We expect this increased demand will be met by a mix of gas and renewables, with a proportion of renewable generation increasing over time as demonstrated by the chart on the bottom left of the slide. This transition to greater renewable supply will start with proven renewable technology, such as wind and solar farms, and will continue to explore alternative renewable and long-duration storage options as technology advances.
It is important to note that gas will continue to have a critical role during the energy transition to provide the base power demand needed to support the energy demand of our operations, even if we don't fully utilize it. As generation from renewables increases, the requirement for gas to provide this base load and stability also increases. Essentially, it works as our backup. We will taper off our gas requirements as more options for carbon-neutral firm power become available. To accelerate this, we're working with teams across the business, including our innovation and ventures team, who are exploring long-duration energy storage and other innovative solutions for firming. We are gonna need a lot more power down the track. Where is it gonna come from?
In terms of whether we buy it or build it, and precisely which sources we use, we are working hard now on these studies and various pathways. We do know this, our energy demand in the Pilbara will increase significantly. We estimate around 7 times our current demand by 2040, and as we eliminate the use of diesel across our rail and mine operations. A large proportion of this increase will be met by renewable sources, and the renewable energy sources will need to be built, and as the lead times are long, we need to act now. Now I'm gonna move on to diesel and our rail operations. Our rail network accounts for about 20% of WAIO's total emissions.
We have around 190 locos, which use almost 200 million liters of diesel each year while traversing our extensive network of track from the Pilbara to the port. In January, we signed a partnership agreement with two locomotive manufacturers, Wabtec and Progress Rail, to develop battery electric locos. We are currently aiming to trial the locos, 2 from each manufacturer in 2024, and upon completion of a successful trial, our existing fleet will be replaced from 2027 with a full rollout by mid-2030's. We are targeting the battery electric here due to the topography of the run between the mines and Port Hedland. As you may be aware, the route is downhill most of the way, and that's when the trains are the heaviest and moving under, and carrying their heavier load.
We can take advantage of this and the regenerative braking to harvest and store energy on that part of the journey, reducing overall power demand by up to half. Coming back, it's uphill, but the trains will be empty and require less power. This means we potentially only need to charge in 2 places, at the mine train loadout and at the port car dumpers. At both places, the trains are already moving slowly, which makes this a lot more achievable. We can use dynamic charging at these two locations to minimize any impact on the train cycle times. We will learn more on the energy needs as the trials progress. Moving on to our other large diesel user, our mines. In WAIO, we have over 800 pieces of mining equipment using approximately 500 million liters of diesel a year.
This accounts for around 55% of WAIO's greenhouse gas emissions. We've partnered with two of our current vendors, Caterpillar and Komatsu, to work collaboratively to develop commercially viable zero emissions trucks. The agreements were signed in August 2021, and the Cat Early Learner truck will be available to us for trial in 2025, with a commercial release for both vendors expected to follow later in the decade. We estimate, and it's still too early to be definitive on this, that the first electric haul trucks will be operational on-site by 2027 and that all trucks will be replaced by the mid-2030s. These are estimates only. In the interim, a diesel haul truck life extension program is underway to bridge the gap until the battery electric trucks are available. It isn't just about buying new equipment.
Replacing diesel as a fuel requires us to develop a whole new ecosystem to surround the fleet. We need to address the way we plan our mines, operate our haulage networks, and consider the additional safety and operational considerations that these changes will bring. We're taking a collaborative approach to make sure we find the right solutions to these challenges. We've been working with industries from across the globe in the Charge On Innovation Challenge, an initiative that allowed us to review technologies and solutions from around the world. From this, we identified eight key submissions from innovators on how to expedite the commercialization of charging solutions for electric haul trucks. Even more recently, just in the last couple of weeks, we announced alongside Rio Tinto, Vale, and GHD that we have established a mining task force with CharIN.
CharIN and its association with over 218 members worldwide dedicated to promoting interoperability based on the Combined Charging System as the global standard for charging vehicles of all kinds. The mining task force's aim will be to make sure any truck charging interfaces across the industry will be standard regardless of the manufacturer. In summary, WAIO is already one of the lowest carbon intensity iron ore producers globally, and we are on track to deliver further reductions in operational greenhouse gas emissions by 2030. We have secured a PPA, which is expected to halve our emissions at Port Hedland with a further 45 megawatts of wind currently planned with a potential first generation date of 2027.
In the Pilbara, we will use our highly efficient Yanima Power Station to provide firm power while the technology for carbon-neutral firm generation continues to evolve. By 2040, we expect to require a further 900 MW of capacity with a large proportion of our power generation in the Pilbara to come from renewable sources. We are working closely with equipment manufacturers to replace our diesel locomotives with battery electric technology and to produce a commercially viable battery-powered haul truck. Both are vital long-term, as 75% of WAIO's emissions come from the use of our diesel. As I said earlier, we believe our decarbonization plans are aspirational but achievable, and we will continue to optimize them as new technologies emerge and commercial applications are better understood. Thank you very much for your time.
I look forward to meeting you as we continue the tour over the next couple of days.
A great many things will change over the next 30 years in commodity value chains. The unfolding of the decarbonization gigatrend and the megatrends that sit beneath it will bring radical change in their wake. The evolution of China's underlying demand for resources will be a second highly influential force. The rapid expected increase in Indian and Southeast Asian demand will also leave an indelible imprint on commodity markets, as will developments in the rest of the populous and ambitious emerging world. Dealing with the impacts of physical climate change will also matter, as will the replacement of long-life capital in high-income countries. Now, the steel value chain will be at the center of each of these developments, and it will undergo considerable change itself in technology, in demand and supply centers, in power sources, metallic mix, and emissions profile.
Versus the completely revolutionary change we foresee in some areas of the energy and industrial system, it is likely that change in the steel value chain will feel more evolutionary than revolutionary for at least two decades, and probably for longer in the emerging world. My remarks will progress as follows. I will give a brief overview of where the steel value chain sits within the context of national and global economic development. That will then flow into a view of the outlook for steel, and I will then discuss the iron ore market. I will argue that the key medium-term beliefs that the iron ore industry and the wider ecosystem held just four years ago were essentially all incorrect, and that an understanding of how we got to today's surprising starting point is vital to comprehend what is potentially to come.
The secular fundamentals of population growth, urbanization, and rising living standards will continue to underpin demand for resources, including steel, for decades to come. The decarbonization gigatrend will also require a vast mobilization of metal supply. Yes, that is the second time I have said gigatrend. Decarbonizing our society is that consequential. I'm gonna use some corporate terminology to explain this. To qualify as a gigatrend, you need to have megatrends reporting to you. The decarbonization of power and the electrification of transport are megatrends in their own right, but they report to the wider societal objective. Now, the link between the end use of mining products and decarbonization is usually raised in the context of critical minerals like copper and nickel.
Less well understood is the fact that the demand for steel is also generally higher under Paris-aligned scenarios than in cases associated with higher degrees of global warming. For example, in BHP's 1.5-degree scenario, the demand for steel is indeed slightly higher than under the base case. In broad brushstrokes, our base case sees the growth in annual steel demand essentially keeping pace with population growth out to 2050. A compound growth rate of roughly 0.75 percentage points. Cumulative demand on a 30-year over 30-year basis is expected to almost double between now and mid-century. Now, you'll see multiple references to the 30-year over 30-year metric throughout the presentation. It measures cumulative change in blocks that are three decades long, the 30 years to 2050 and the 30 years prior to the pandemic.
Just to be really clear, these are not annual run rates. Run rates, I feel, underestimate the amount of effort and capital that needs to be deployed for a massive commodity business to just stand still, let alone grow. You can usefully think of the 30 over 30 metric as a comparison of the area underneath the curve that your annual run rates create. In addition to our planning range, which captures the various BAU cases we run to assess demand, supply, and price uncertainty in our internal protocols. You will also see data from five of the bespoke scenarios we run to complement, critique, and strengthen our planning ranges. Now these five scenarios are our official 1.5-degree case, which is now incorporated into central planning deliberations, as flagged in our Climate Transition Action Plan, or CTAP.
The disruptive climate crisis scenario that we first discussed in our climate change report in 2020. The deep green hypothetical for the steel industry that also featured heavily in our CTAP, and two scenarios that map to specific rounded global warming outcomes of 2 degrees and 3 degrees respectively. Now this slide encapsulates all of that. As we go deeper into the narrative, note that the regional slides will feature 3 cases rather than 5. This is for reasons of both simplicity and false precision. One-point-five degree in climate crisis scenarios, which are bookends on this slide, we feel they are less useful for assessing granular regional detail than bottom-up cases like deep green and also the scenarios for 2 and 3 degrees. Other than that, expect to see this style of data presentation repeated throughout the discussion.
The long-term question for the iron ore industry, of course, is how and where all of that steel will ultimately be produced. Before we get to that though, let's take a look at how the steel value chain interacts with the broader economic development process. These schematic charts depict arguably the three most important value chains in our society today and their relationship to rising living standards. Food on the left, primary energy on the right, and steel in the middle. Each is absolutely essential to our way of life and to life itself, if we're talking about the food value chain, and each has a distinctive relationship to economic development.
In contrast to food and primary energy, which tend to increase in per capita terms throughout the journey to high income status, steel use per head tends to follow an upside-down U shape over the course of the development journey, with the peak or plateau at the national level occurring around middle income. Early in the national development life cycle, the major use of steel is in construction, which is closely associated with the process of urbanization. As an economy develops, manufacturing becomes a more influential user as the emphasis of the capital stock build-out shifts from dwellings and infrastructure to transport machinery, consumer and capital goods. At industrial maturity, manufacturing becomes dominant.
If you direct your eyes to the top left-hand panel of this chart, you will see that wealthy countries like the U.S., Japan, and Germany use the majority of their steel in manufacturing rather than construction, somewhere in the range of 60/40 or 70/30. In India, where living standards are around one-tenth of those in the U.S., 70% of steel goes into construction. In China, the ratio has been close to 50/50 in recent years. Surveying the other panels, you will see each region has a distinctive combination of characteristics reflecting local demand conditions, diverse indigenous feedstock availability, and different capabilities and attitudes towards the trade in scrap and the trade in direct and indirect steel products. This heterogeneity informs our long-run forecasting, which emphasizes a bottom-up, regionally idiosyncratic approach.
Some interesting kernels of information from this chart include the facts that Japan is the most exposed to direct exports of steel. Germany is most exposed to indirect exports. As a proportion of total production, China's direct trade position in steel is lower than Japan's, Germany's and India's. India is by far the most reliant of the major producers on DRI or direct reduction iron feedstock, and on imports of scrap. The U.S. is by far the most reliant on domestic scrap for its own production, while still maintaining a sizable net export position in the feedstock. Iron ore trade exposures are pretty close to binary for four of the five. India and the U.S./North America are close to self-sufficient, while Japan and Germany are fully reliant on imports.
The two measures where the Chinese system is a clear outlier are the interdependent observations on blast furnace and pig iron share. Now, let me turn to China. China's accumulated stock of steel in use sits close to 8 tons per capita today. We firmly believe that by mid-century, this will almost double. China's current stock is well below the US level of around 12 tons per capita, while Germany, South Korea, and Japan have even higher stocks than the US. You can see that history and our forecast for China, India, and Southeast Asia on this slide. We estimate that by 2050, China's growing stock will create a flow of end-of-life scrap sufficient to enable a doubling of China's current scrap-to-steel ratio of around 22%. Now, the exact trajectory of annual production run rates in China that will achieve the future doubling of the stock is uncertain.
On this slide, we switch from stock levels to annual run rates or flows. You can see the smooth multi-decade waves of global steel intensity per capita on the left, and a diverse set of individual regional pathways in the remaining panels. Our base case remains that Chinese steel production is in a plateau phase in the current half decade, between 1 and 1.1 billion tons per annum, or if you prefer, between 700 and 770 kilograms per head. The veracity of the plateau concept has been aided by the fact China is on track for a fourth straight year within the above range. It is also underscored by the authorities pursuing 0 growth in calendar 2021, and a net reduction in total output in 2022.
Probabilistically, the 1.065 billion tons produced in 2020 therefore has a better than even chance of being the literal peak once all is said and done. That observation is notwithstanding the fact that current capacity has demonstrated the ability to produce monthly run rates that have comfortably exceeded 1.2 billion tons per annum. Beyond increasing scrap availability, the decarbonization choices of Chinese steel mills will be determined by the age of their integrated steelmaking facilities, the policy framework they are presented with, developments in the external environment impacting upon Chinese competitiveness, and the rate at which transitional and alternative steelmaking technologies develop at home and abroad. China, of course, has by far the youngest fleet amongst the major producing regions at just 11-13 years.
Capacity has been turning over quite rapidly in the last 5 years under the auspices of the supply-side reform and the capacity swap scheme. The clear trends have been to build larger, more efficient furnaces that are closer to both domestic demand centers and imported raw material supply on the coast. Turning to India now. We hold a constructive view of India's steel demand in the coming decades based on highly prospective secular fundamentals. To cut a long story short, we see a pathway to India expanding steel production four-fold by 2050, using 100 million tons in calendar 2020 as a base. Starting with demographics, the total population is expected to increase from around 1.4 billion today to around 1.7 billion in 2050. We expect roughly 400 million Indians will migrate from rural to urban areas in the next 30 years.
That will take the urban share from around 1/3 to around 1/2, and that segment of the urbanization arc is the sweet spot for traditional commodity demand and for steel in particular. Alongside these monumental demographic and spatial changes, where 3 of the world's 5 largest cities are expected to be in India in 2050, up from just 1 in 2010, we expect living standards will rise from about 10% of US levels today to about 1/3 by 2050, something akin to the relative position of Thailand today. The combination of these secular forces will create enormous demand for affordable steel. Now, of course, you all know that India has promise, but historically, you've banked that promise at your peril. What gives us confidence in the long-run outlook?
Well, first of all, and principally, we have conducted a detailed study of the government's ambitious target to more than double steel capacity to 300 million tons by 2030. While we certainly discount the likelihood of hitting that precise target at that specific timing, our research shows that a plausible pathway to that interim milestone exists. I'm not using the term interim flippantly. Some of you will have noted that my earlier statement of a four-fold increase in production by 2050, be very clear, production, not capacity, which is how the government target is expressed, implies very firmly that yes, 300 million tons of capacity is far from the final destination. It is an important stepping stone on a much longer journey. You can see some of the potential expansions documented on this map, and the basic technological route is also indicated.
There's an emphasis on co-location with the best of the domestic iron ore resource in the east nor east. Now, a final observation on this point. Even with a four-fold increase in production, India will still be moving along a steel stock and use schedule that is substantially lower than that of every major economy in our sample at equivalent levels of GDP per capita. As I'm fond of saying, both because it is true, and also because it serves as a timely reminder and reality check for Euro or OECD-centric views, the decarbonization battle cannot be won in the OECD alone, but it can certainly be lost in the developing world. If I had to choose a single location where that statement holds most true, that choice would be India.
Now, somewhat lost between the two giants of China and India are the 700 million or so residents of Southeast Asia, four of whom are in my family. It's a dynamic and fast-growing region in its own right. The region's steel requirements are close to 110 million tons per annum today, and that is expected to triple by 2050. Historically, the majority of the region's steel needs have been met by imports, but local production has been gaining share since the mid-2010s. A mini boom in blast furnace construction has kicked off with a little under 40 million tons of capacity currently under construction and over 60 million tons announced or in planning.
As you can see on this map, the projects are region-wide, not concentrated in a single hub or two, and many are also clearly dispersed within countries to service sub-national domestic demand. Having zoomed in at the regional level, it's now time to zoom out again. Let's talk steel and climate change. Now, there are four main ways in which physical climate change and efforts to address and forestall it impact on the need for steel, and they're listed on this slide. As you can see on the right-hand side of this chart, the net impact of these upward and downward forces is that steel demand is slightly higher under this combination of conditions than under a reference case that excludes them. I will now focus on the first and third points in more detail. Power generation currently provides less than 2% of global steel demand.
Now, that share is expected to triple by 2050, noting every percentage point increase in share in 2050 will equate to between 20 to 25 million tons, depending on what you assume for the other sectors. The decarbonization of power will be dominated by onshore wind and solar PV, with complementary roles to be played by offshore wind, hydro, and nuclear energy. Where pure steel intensity per megawatt of capacity is concerned, wind and hydro power are the clear standouts. Offshore wind capacity requires 190 tons of steel per megawatt, and onshore capacity requires 124. Hydro requires 161, and while solar is less steel-intensive at 45 tons per megawatt of capacity, the sheer scale of the projected solar build-out makes it the second-largest contributor to the overall uplift in steel demand from power gen, behind only onshore wind.
Looking solely at steel demand from the wind and solar segment, it is expected to increase five-fold from today to 2050. Now, beyond building out the infrastructure of the energy transition, physical climate change will also have an impact on the need for steel. We've made an interesting discovery in our investigations of climate change in all its aspects. An empirical relationship between climate parameters and the rate at which capital ages or depreciates. Capital lifetimes and replacement cycles matter a great deal in long-term commodity demand forecasting. Now, our results imply, very intuitively, that physical capital ages more quickly in less temperate climates. Those that are very hot, very dry, or very wet and especially where either precipitation extreme is mixed with heat. Now, in both of these charts, we've plotted capital depreciation rates at the economy-wide level on the vertical axis.
The left-hand panel, you can see a simple upward sloping linear relationship between depreciation and temperature. In the right-hand chart, we have precipitation rates on the horizontal axis. The relationship is more complex. As you can see, rather than being linear, the fitted curve is a flattish U-shape or a smile, as such curves are appropriately dubbed in finance theory. We've decided to name this new curve after the Sumerian god of rain, Ishkur. I present Ishkur's smile. In practical terms for steel, these relationships imply that as the climate warms and precipitation tends towards extremes, i.e., wet areas get wetter and dry areas get drier, additional capital stock will need to be replaced each year versus the reference case, pushing the fixed investment needs of society upwards. That implies that the world is likely to become more materials-intensive as physical climate change unfolds, all else equal.
On the basis of this research, we have shortened capital lifetime assumptions in our demand models, which has two impacts. Number one, it brings forward replacement demand, which front loads the need for steel versus prior cases. This effect is worth 73 million tons in 2050 in the 2-degree scenario. About the same as adding another South Korea to the market. It also brings forward scrap availability, which partially discounts the flow-through to iron ore. Now, a final word on capital stock turnover and scrap. In high-income regions that have reached the point where the stock of steel in use levels off, the replacement of capital stock becomes an important driver of the flow of steel demand, just as the retirement of the old stock influences the flow of scrap.
Replacement demand is also a key reason why steel demand in high-income regions does not fall back all the way to the level of low-income regions, even decades beyond their obvious peaks. When we talk about an upside-down U-shape for steel output per head in the form of the Kuznets curve for steel that I presented in the schematic diagrams at the outset, what we really mean is that steel demand per capita for an industrially mature economy looks like a question mark sitting on its side. Now, this slide reproduces the same information for steel you saw earlier, but it also superimposes the outcomes for iron ore. Here you can see that flexing technology and policy levers across the various bespoke scenarios brings greater differentiation for iron ore. It also lowers the entire planning range vis-à-vis steel, consistent with an anticipated increase in scrap.
On the right-hand side of the chart, we also show the projected increase in DRI usage. We've also gone into the changing regional composition of demand a little further, highlighting rising shares for developing Asia and a material decline in the share for China, notwithstanding the fact it remains more than three times the size of the second-largest region. Now, the numbers in the chart are our own projections. For another view of this, Wood Mackenzie projects 170 million tons of import demand from developing Asia in 2050. That's roughly 130 million tons higher than today, with a little over 600 million tons of ore consumption, up from a little above 250 million tons today. On the import side, in 2050, they project roughly 50 million tons will go to India, 50 to Indonesia, and 60 to Vietnam.
This growth is an important offset for the projected decline in China. Now, in my mind, resilience is the word that best describes this outlook for iron ore demand. This underscores the fact that we continue to see this industry as an attractive one for BHP. In recent history, of course, iron ore has been a truly spectacular industry to be a part of. However, just four years ago, expectations were low. In the midst of the U.S.-China trade war, the consensus was that demand would be modest, low-cost seaborne supply would increase, higher cost supply would be progressively squeezed out, the cost curve would flatten, and prices would soften. In reality, the opposite has happened on every score.
Now, in terms of our own views, we agreed with much of the stylized convention, the stylized consensus position at this time, with the exception of demand. I would argue we've been consistently more positive than most since the mid-2010s, reflecting in large part our long-held views on the timing and level of China's plateau. Once again, using Wood Mackenzie's forecast as a proxy for market consensus, we've assembled expectations for the state of the industry in calendar 2021 from the vantage point of 2018. You're essentially looking at a three-year ahead forecast. We've compared that to the actuals, and the results may surprise you. Contestable demand is 125 million tons higher than expected. Major seaborne producers have collectively exported 79 million tons less than expected.
Rather than being squeezed out, higher cost producers, so China domestic and junior seaborne, have increased production by 183 million tons. Now, you all know this market, they are big numbers. You clearly don't need me to tell you what has happened to price. A new record in 2021, and cost support is currently sitting in the $80 to $100 per ton range in 62% CFR terms. Now, the price has bounced off this level more than once since Chinese steel curves were introduced a little over a year ago, which is an important buttress to the desktop view of where real-time cost support might lie. We also note that raw tonnages do not tell the full story on supply.
While an investor may define a reliable supplier as simply someone that delivers volume as guided, to a customer, reliable supply includes the additional criteria of delivery on time and to specifications. Now, in the simplest measure of reliability, the chart on the left shows the relative accuracy of volume guidance over the last decade. As you can see, the record across the industry is mixed. On the other aspects of reliability, those that matter most to the customer, the proportion of off-spec product has been rising of late with mixed performance industry-wide once again, which may be indicative of either geological or operational challenges or both. This has impacted upon absolute and relative realized pricing outcomes. If reliability is a distinctive trait, and the recent evidence implies that it is indeed distinctive, it is likely to be rewarded in price realizations.
That is something you saw very clearly in Brandon's competitive analysis. Looking out a few years, we consider the entry of new higher-grade supply from the Simandou project to be a near certainty. With first tons likely to come around the middle of the decade. We also note the ambitions of the Chinese domestic iron ore industry to increase production materially, and the desire of some of our competitors to do the same. We also need to square all of this, the many moving parts on the demand side that we have just discussed. As Brandon has made clear, we are laser-focused on not just maintaining our position as the lowest cost major iron ore producer, but on extending our current lead and lifting our overall quality profile from its already competitive starting position.
Now, based on the projected 2030 cost curve from Wood Mackenzie we've represented here, where the large flat sections are the positions of the major producers, we're not alone in thinking that that can be done. We're also conscious of the many supply-side headwinds in this industry, some of which are common and uncontrollable for everyone, some are bespoke to specific regions or projects, and some are common, but are areas where we feel we can continue to effectively differentiate ourselves through our ability to compete on both cost and quality at the asset, allied to world-class functional support to optimize both the inbound and outbound segments of the value chain.
Now, these factors include, and this is not just gonna be three bullet points, this is a shopping list, so the factors include the complexities of delivering major greenfield projects in challenging climate zones and or new jurisdictions, rising geological hurdles in major basins, the rising incidence of extreme weather events, ever-escalating social value expectations with heritage at the center of that, uncertainty over medium and long-term bulk shipping rates and what that means for the competitiveness of the major basins and for new entrants, differential sequences of mine depletion and differential hub productivity in the major basins, uncertainty around the future of some swing supply into the seaborne trade. The fundamental challenge of operational decarbonization, which we've already heard from Anna today. Rising policy and geopolitical uncertainty globally. The enduring theme of tight labor markets and pronounced skill shortages.
Rising incidents globally of work stoppages in our broader industry and adjacent ones. Everything we have learned about the fundamental fragility of supply chains under the stresses of recent years. Given these challenges, signaling an intent to grow and actually delivering on that intent in a timely and capital-efficient way will not be a straightforward endeavor for all. Knowing all this, and knowing the quality of our own resource, and our lengthy track record of both reliable operational performance and project delivery, and understanding where the point of optimum operational efficiency for our basin may lie, there is a firm prima facie case to be studying the various paths to 330 now.
As I leave you with that basic thought, here is another point to add in terms of the delicate equation the supply side of the industry is attempting to solve. We also need to be very mindful that the quality requirements of our customers may become even more exacting as they embark on their decarbonization journeys in earnest. What might those journeys look like? We're about to play a short teaser on that point, after which Rod Dukino will replace me on the stage. Thank you very much.
The energy transition dilemma. Without metals, the energy transition cannot occur. Metal production itself can be an emissions-intensive process. Today, there is no certainty over the world's climate and emissions pathway, and markets struggle to cut through the complexity and assign values to the monumental risks and opportunities that are at stake. We have studied more than 100 unique pathways to a Paris-aligned world to find the common themes on which most models seem to agree. One, radical change to the world's energy and land use systems is required. Two, the battle will be won or lost in populous emerging markets. Three, early action is less costly and disruptive than delayed action. Four, policy must address all fundamental elements of the transition to allow the demand and supply sides of the energy system to adjust. Five, carbon pricing is a core ingredient of any effective policy framework.
Six, none of the above will be feasible if the supply of metals does not keep pace with the spectacular demands of the energy transition. Metals are essential for daily life. They are also essential inputs for the hardware of decarbonization, such as electric vehicles, wind farms, solar panels, batteries for stationary storage, and distribution pipelines for captured carbon. Consumers and investors, though, should not be indifferent as to where these metals come from. The production of metals can often be an emission-intensive process. There is considerable differentiation between these companies working to the highest sustainability standards, including the pursuit of the lowest possible operational emissions, and those that are not.
Investors have an important role to support the energy transition by engaging constructively with the mining sector to speed the driving down of operational emissions and mobilizing the capital required to ensure responsible metal supply does not become a bottleneck in the race to Paris.
Good afternoon, everyone. My name's Rod Dukino. I've recently moved into my current role, which is the Vice President of Sales and Marketing Sustainability. Prior to that, I looked after iron ore marketing for BHP, and this role really, I think, excites me. It sort of brings together my background. I started my career in steelmaking research and then moved over the years through the value chain in strategy roles, technical roles, and then eventually into commercial roles. Look, Huw has given us a bit of an overview of the gigatrend around decarbonization at a high level. Today, I was going to sort of take you through some of the potential pathways towards steel decarbonization.
Talk specifically to the technologies that are supportive of the use of our Pilbara iron ores, and then update you on the role that BHP is playing in that journey. BHP's three-stage framework to low or no carbon steel production was first published in 2020. It'll be familiar to many of you. This framework remains relevant.
The majority of the steel today is made via the blast furnace route. Most steel makers are already taking actions in this first stage over here on the left, which we call the optimization stage, which involves the selection of raw materials and best-in-class practices. We see market leaders trialing actions in this second stage, which we refer to as the transition stage, either through retrofitting abatement technologies to the blast furnace process, or through trialing electric furnace technologies fed by scrap or direct reduced iron.
In relation to the blast furnace, the key levers that are going to reduce the CO2 from that process are displacing as much fossil carbon in the form of coke as possible with hydrogen or biocarbon, intelligently recycling waste gas and waste heat in the plant, and via the application of carbon capture, utilization, and storage on selected gas streams. The transition phase is going to play an important role in making a material reduction to carbon emissions in the medium term until the technology, economics, and infrastructure required to support the production and supply of renewable energy and green hydrogen comes at scale. Really that's the difference between the transition and the green end state is renewable energy and green hydrogen at scale. Let's dig into these pathways in a little bit more detail.
It's quite a busy slide. I'll talk you through what this slide's about. By no means comprehensive in terms of the pathways, but these are the pathways that through consultation with our customers, engineering, and technology providers, we see as plausible pathways evolving in the industry. They are the decarbonization of the blast furnace route, the electric furnace either fed with scrap or direct reduced iron, DRI, and lastly, the electrolysis route, so using electrons to produce steel from iron ore. Across the top of the diagram, we see the CO2 intensity per ton of steel starting on the left at 2 tons of carbon dioxide per ton of steel for the conventional blast furnace route, down to 0 on the right.
The boxes in the center of, in the darker green, represent that transition phase that I spoke to earlier, and the lighter green boxes on the right represent the green end state for each of those pathways. As I said, the difference between the light green boxes and the dark green boxes is really about green hydrogen and renewable power. I don't intend to go through those technologies in a lot of detail. If anybody's got questions in the next couple of days, I'll be joining the tour, very happy to talk about it. I wanted to draw out you know, four key takeaways from this slide. Firstly, irrespective of the pathways, without green hydrogen and renewable power at scale, the industry will struggle to reduce emissions below 50% of the levels today.
This is a critical enabler, as Hugh talked to. Secondly, through a combination of abatement levers, it is possible for the blast furnace route to approach a near green end state. All of the levers might not be viable in all jurisdictions, but considerable reductions are possible via the blast furnace. I'll talk to the fact that we see our customers in virtually all regions, with the exception of Europe perhaps, working on technologies to abate emissions from the blast furnace. The third takeaway is we've identified a new electric furnace route, and I think this is particularly significant because we know that the electric arc furnace is not ideally suited to all iron ores in the cost curve. This new technology is called the electric smelting furnace, or ESF rather than EAF. Sorry for the acronyms. I'm from Singapore, we love three-letter acronyms.
The technology was often referred to as a melter furnace as well, and I think BlueScope in their recent investor presentation called it the melter furnace. The electric arc furnace was developed to melt scrap many decades ago. Hence, when replacing scrap with DRI, you require DRI made from very high quality iron ores, greater than 67%, and you also require very high degrees of metallization. That means that all of the iron oxide needs to be converted into metallic iron before it goes into the EAF, so the DRI process has to do all of that reduction. We know firsthand from operating our HBI plant in the Pilbara, that for Pilbara iron ores, that's very challenging.
It's very challenging to get 67% iron out of those iron ores, and it's also very challenging to get, you know, very high metallization rates. The ESF, on the other hand, operates efficiently with Pilbara ores and can manage the lower levels of DRI metallization. Hence, it de-stresses the DRI process. You can complete the reduction process in the ESF. How do we come about this technology? Well, we've drawn on our steel-making past. In the BHP portfolio in the past, we had New Zealand Steel. They have an electric smelter furnace used to process low-grade concentrate, iron ore concentrate. Using this knowledge, we worked with researchers at the University of Newcastle and providers like Hatch to firm up the concept. We've then seeded it widely. We've had a very busy year talking to our customers.
We've taken this modeling and this preliminary design work to our customers in Japan, Korea, and Europe, who are now looking seriously at this technology as part of their future DRI projects. We've seen announced projects to build DRI ESF rather than EAF projects by Tata, thyssenkrupp, POSCO, and we're observing a swing to consideration of ESF by other top steel mills. Last point from the slide, I just wanna draw your attention to electrolysis, the third pathway here. This is a promising technology applied in other commodities like copper. It's capable of using renewable electricity and it shows a lot of flexibility in its ability to process ores of different grades. Laboratory-scale trials have successfully produced steel using our iron ores, and the next phase of work is trying to scale this technology up.
That's the real challenge for electrolysis is scaling it up and achieving the productivity required to replace a modern steel plant. I think Hugh alluded to the fact, and I'll make the point again, that the costs associated with these abatement levers are generally high, and varying degrees of engineering or scientific technology development are required along probably with carbon pricing to induce a faster rate of change. As mentioned by Hugh, primary steel production rather is required to deliver the steel demand forecast, and that's after taking into account assumptions on scrap. The world will continue to need to be able to produce steel from iron ore.
We can see from this WoodMac data as a sort of a proxy of today's supply curve, that medium-grade ores constitute the major part of the traded market. So-called electric arc furnace or EAF-quality iron ore, that is ore with an Fe grade of 67% or more, constitutes only 3% of the current market. Whilst we and other suppliers are investing in beneficiation, and in our case, that is not only conventional beneficiation, we're looking at applying it in various places within our business, including the Jimblebar mine, but also we're looking at novel or early-stage beneficiation.
However, we know that the intimate association between the impurities in Pilbara hematite, goethite, iron ores that we're gonna see over the next couple of days, we know that they're intimately associated with the Fe matrix, with the iron minerals, and there's a limit to how much you can separate them out without throwing away iron. Therefore, we believe steel-making technology changes like the ESF or electrolysis are likely to play a role in supporting the demand for Pilbara iron ores in the longer run. Turning our attention now to the sort of the regional nuances. Efforts to decarbonize steel will progress at different rates in different regions based on the availability of lower carbon feedstock, including scrap, the availability of green hydrogen and renewable power, the age of the existing blast furnace fleet, and the levels of policy support.
If we look at Europe, you're certainly seeing Europe accelerating towards a hydrogen-based DRI green end state, through government funding and the application of carbon pricing, and this is also supported by an aging blast furnace fleet. China has committed to a 2060 zero emissions target with larger leading mills committing to 2050. Those same large mills state or infer continued use of the blast as a major contributor to their steel production by increased scrap usage and the abatement technologies I discussed earlier. In parallel, we see China investing in electric furnaces and DRI-type technologies. We're likely to see, you know, those trials, that capacity coming online from the 2030's. China has storage options, conventional storage options, has massive production, blast furnace production scale, alongside other heavy industry emitters like cement and chemicals.
These are all supportive factors for the development of carbon capture and storage, so the CC and S part of the equation. Japan and Korea also focus on decarbonization of the blast furnace route in the medium term, while in parallel developing DRI electric furnace solutions. Unlike China, these markets have limited conventional storage options for carbon dioxide, and as such, capture and utilization is attractive. CCU is a stronger focus in terms of technology investment in those markets. India has a national target for 2070, setting the bar for steelmakers further out than other regions, and as such, may remain in that optimization and transition those first two phases of the framework for longer than the other markets. India is still building new blast furnaces and will need to solve for the high emissions from the coal-based sponge iron sector.
I want to turn our attention now to how we're supporting steelmaking decarbonization. Many of you will be familiar with our Climate Transition Action Plan, or CTAP. It outlines BHP's role and actions in helping the world to achieve its ambitions around decarbonization. The framework lays out the control, partner, and influence. On the partnerships side, I'll talk to that in more detail. That's the main sort of engagement mechanism we're using. On the control side, what do we control? We control the products we sell and who we sell to. As I previously mentioned, we are evaluating conventional and novel beneficiation options for WAIO. In terms of influence, we advocate influence through the work we do and share as much as possible of the knowledge we're generating.
I've spoken to the ESF example, but we widely share all of the technology projects that we undertake where we can, and we do that through our customer partnerships, conferences, and peer-reviewed scientific journals. We're also advocating for transparency on emissions and the use of consistent reporting standards, but they're not currently in place for steel at the moment. Only once you have that can you really set a baseline for tracking improvements and provide visibility to the value chain participants. We're also participating in the ResponsibleSteel Standards Initiative to establish a certification for green steel. Back to partnerships. As I said, this is our main thrust of our efforts to decarbonize steel.
Our customer partnerships are with the largest and most influential steelmakers in Asia, representing 31% and 25% of our iron ore and coal sales, and around 13% of global steel production. We most recently signed an MoU with Tata Steel to bring out the total number of MoUs up to 5. In addition to customers, we have partnerships with OEMs, research institutes, and with startup companies via our ventures investments. Our partnerships cover all three decarbonization pathways that I talked to earlier. To date, our focus has primarily been on feasibility studies and research to support future technology scale-up. Currently have around 30 active research programs in five different countries.
I won't talk to all those, but some examples, work being done includes work in Canada that helping our customers to understand how to use our ores in pellets to be fed into the blast furnace or the DRI shaft furnace. We're doing work in China with the University of Science and Technology, Beijing, on how to optimize lump ore in a decarbonized blast furnace. While we've been focusing on that smaller scale work, we're starting to shift our focus to larger scale demonstrations. A couple of examples in this space, in collaboration with Chinese steel mills, we've conducted plant trials of displacing coke in the sintering process with natural gas. With another mill, we've looked at taking that research around lump and scaling that up and doing blast furnace trials.
As Brandon mentioned, the lump avoids the need to do sintering and it drives productivity within the furnace, so it has a significant benefit. In fact, those two trials in aggregate, if applied to all of our customers, would have resulted in 4-5 million tons per annum of lower CO₂ output, so quite material. We're also working on DRI process configurations and work in particular with JFE and Hebei Iron and Steel to trial our products in existing and future DRI plants. I mentioned before the work we're doing on the ESF. We're now moving into the next phase with Hatch, Auditech, and Midrex to define the design and operational requirements to support a scale-up project, and we're looking for opportunities to scale that up with other partners.
Finally, our ventures investment approach allows us to participate in early technologies and learn as they are developed. In terms of steelmaking, we have two key investments in both companies developing electrolysis technology, one with Boston Metal and the other with ElectroSteel. As I mentioned, we've been able to produce iron and steel from our iron ores in those processes, and they really impress us with the speed of scale up that they're doing. Finally, we see an opportunity for consortiums to accelerate project development and bring efficiency to investment in this space. There are many willing parties who want to participate in steel decarb projects, and there's certainly a case to pool resources and bring in financiers to help make projects more effective, and that'll be a key focus for us in the next twelve months.
To recap, there are multiple potential pathways to green end-state steel making, and our customers are primarily focused on decarbonization of the blast furnace and the DRI electric furnace route. Electrolysis generating increasing interest. The mix of technologies will vary regionally, and substantial technological development is required to support a green end state. BHP supported the electric smelting furnace or melter furnace as preferred option for processing DRI into iron because it offers operational flexibility that supports a wider range of iron ore qualities, including Pilbara iron ores. That technology has gained significant traction with customers in Europe and Asia. We continue to strategically partner with our customers, research providers, to demonstrate pathways to the green end state, and we are on track to deliver our decarbonization goals.
All right. Welcome back. Thanks everyone for coming back into your seats. What we're gonna do is Q&A session with the team here. We're joined by Kristy Heal, who's Head of Finance for WAIO, as well as the rest of the team. What we're gonna do, 'cause there's quite a few of us here in the room, I'll just restrict people to one question each, at the start, and then we'll see how it goes. If you could name who you are, what organization you represent, but put your hands up. I think James is very organized. We'll start over here.
Thanks, Tristan. James Redfern from Bank of America. One question would be for Brandon. Just wondering if the medium-term target to over 300 million tons is conservative given that South Flank's ramping up very well, 67 million tons in the June quarter, and it says here ramped up by FY 2025. In the Port Debottlenecking Project, PDP-1, completion FY 2024. I'm just wondering if maybe that could be the 300 million tons could be in FY 2025, for example. Thanks.
No, I wouldn't quite describe it as conservative. I think first of all, South Flank is ramping up really well. The constraint in the business is at that rail car dumper interface, and the work we have to do there is to debottleneck effectively the utilization we get out of the car dumpers by lifting the stockyard capacity and rates of infrastructure downstream of the car dumpers. The system is currently quite stretched and operating at a high level of productivity. This work that we debottleneck through PDP-1 continues to keep some stretch in the system. I think defining it as conservative, no, I wouldn't do that.
Rahul Anand, Morgan Stanley. Look, I was gonna talk a bit about the port capacity. I just wanted to understand what levels or what classes of capacity allocation you have and what kind of risk do you see in terms of being able to perhaps get to 330 and maintain that sustainably as you get more and more tons coming out of other producers.
There's been quite a bit of study work done on the port, and we know Port Hedland now has a 660 million tons per annum capacity. There's been a recent reallocation of capacity. We have 300 million tons of Class A capacity, which effectively gives us preferential shipping on what I would describe as the best tides. The remaining 30 is contestable demand, which we define as Class D capacity. Those demand levels are what we're currently running today. Our confidence in being able to run 330 through the port infrastructure, particularly the channel and so on is pretty good.
It's Lyndon Fagan, J.P. Morgan. I've got a question for Huw McKay, actually, on Chinese steel production. I'm wondering if you could maybe give us an overview on China's property sector, the significant weakness that we're seeing there in the data, and why that doesn't appear to be showing up in lower steel output. Is it that we're likely to see that on a delayed basis? I guess, how you think about China potentially reopening from COVID Zero, is that likely to result in anything positive in steel output? Thanks.
Okay. Thank you. Thank you, Lyndon. I would say that weakness in real estate has shown up in steel demand because end use from real estate has contracted materially last year and in the year we're in. We've already absorbed a lot of weakness from that sector with respect to steel demand. We've seen it by carrying a much higher inventory position through this year, and we've seen it in negative margins for steel makers through the year in that a lot of the production is not finding a home in a timely fashion, and that's why margins have actually been weak, and you've also seen that in the iron ore differentials through much of this year. With respect to where we think it's headed, I think that it will grow next year, steel demand from real estate.
Our source of stability framing for the Chinese economic outlook remains firm. That's on a 12-month look ahead from basically our annual results. The economy will feel firmer and healthier from a domestic point of view in 12 months' time. The COVID Zero aspect of your question, that's the big impediment in terms of the short run or the first 6 months of that period. COVID Zero is a clear headwind for the economy, and real estate hasn't picked up yet. The final observation on how to read the real estate data in China, if the starts and the completions are telling you different stories about what's happening in Chinese real estate, you should default to the construction underway and the square meters that are actually underway.
That pipeline is weak at the moment, but we do feel that it's replenishing a little, and it will look firmer by the middle of next calendar year. A final point, infrastructure is actually doing very well at the moment, and that's never gonna be a full offset for real estate, but it's the next best thing.
Thanks.
Hi. Paul McTaggart from Citi. I just want to touch on ESF. It's an additional processing route. I mean, it's an additional process which is energy consumptive. I can see it, if you've got a green energy supply, it's kinda low carbon. But in a transition phase, where we're still dependent on some kind of fossil fuels or transition fuels, it still actually adds to energy content in dealing with Pilbara ores. What's the kind of pathway to the end solution, given that we have to deal with additional costs in processing and CapEx and carbon?
Maybe I'll start with the last bit first. It's in place of the EAF. You would have a DRI front end. Normally, you'd have an EAF. The ESF slots in place of the EAF. The difference is that the EAF will produce steel. The ESF produces iron and would require a basic oxygen furnace step at the end. Now, that basic oxygen furnace infrastructure is already there, so no more capital. It's a question of utilizing that. In terms of the carbon, you can see from the graph that you can still get down to very close to zero carbon.
You have to deal with a little bit more CO2 because you are using a little bit of carbon in the ESF, but it's providing you a lot more operational flexibility at the same time.
Hi. It's Glyn Lawcock with Barrenjoey. If I've listened to Hugh and Rod correctly, it would appear as though the iron ore market might actually grow some more from Southeast Asia, but also the Pilbara ores will have a future if ESF works. My question then, I guess, is how 330, you know, I've watched this industry and this company for 25 years get it wrong. You underestimate the growth in demand 20 years ago. You know, is 330 now, like is that the capability of this system before we have to go back to that old Outer Harbour option? Why 330? You know, am I misinterpreting what Hugh and Rod are saying? You know, I'm trying to marry up, like, what is the flex and why 330, and should it be bigger, and can it be bigger? Thanks.
330 is the sort of structural limit of what our existing berth and port infrastructure can actually put out of the system. If we get maximum productivity out of the current ship loaders, 330 is feasible, and 330 is feasible with our capacity allocation for the channel. Our view is there's potentially more headroom in the channel. If we wanted to grow at some future date beyond 330, we would actually then be in a position where we had to build additional berths, and we do have some real estate within the port to enable us to build those additional berths with additional ship loaders.
We do not have any plans to go back and revisit the projects that set out on the Outer Harbour. The capital numbers were simply too large. We would pursue more efficient options by continuing to really stretch the existing infrastructure we had.
Hi, Rob Stein from CLSA, got a question for Huw McKay on demand. Noting India's large GDP growth that you're forecasting and also the, I guess, steel intensity that you're associating with that. In terms of iron ore demand, though, are you still seeing India being largely self-sufficient? Will it import specialty products to meet its needs, or will it have to resort to being a seaborne importer to meet its growth needs for steel in the long term?
Okay. I studied the Wood Mackenzie number, where they see India at about 50 million tons import by 2050. We certainly see India becoming an increasingly opportunistic importer over time, and at some point there will be a structural component of Indian import demand in the seaborne build. For today, it's essentially self-sufficient. Where I think it gets quite interesting though is you think about India's contribution to the seaborne trade today. It exports its lower grade product out of the West Coast, which doesn't really find a home in the domestic steel industry, and that actually is a swing source of supply, which helps us actually define that cost support, which we've seen under the circumstances the last year or so, the $80 to $100 that I talked about.
One of the points that I referenced at the end is that uncertainty around various aspects of swing seaborne supply. An element of that observation is Indian export tariffs on iron ore, as they actually seek to prioritize the domestic industry over movement into seaborne. India is a very important swing factor. Never going to be hugely consequential in terms of the absolute number for the seaborne trade. At the margin, it can actually become quite influential.
Olivia Markham from BlackRock. I wonder if you'd help me put some numbers around the cost savings that come from decarb. Maybe you might be able to help me frame it because I know you probably haven't formalized them completely. Also the CapEx numbers. You sort of talked the CapEx at the company level to get through to your 2030, but these numbers feel like they're gonna be a lot bigger than that when you also look at some of the other iron ore producers in WA that have come out with numbers. Could you help me put that together where you can?
Let me tell you. Let me do the latter part first. From the company perspective and the guidance we provided around the $4 billion, we're probably gonna sticking with that today. We won't be able to give anything further than that today. The iron ore percentage of that is representative of what you would expect from the scale of the business and the work that we need to do across that. As we think about the OpEx side, we are continuing to evolve that, our perspective on that.
We absolutely believe that as we remove the diesel from the fleet, obviously that will be a cost saving, and that'll be offset from, you know, and that will be weighed up against the cost of the incoming renewable energy as we see it. We do see that sort of on the whole to be positive story. We see some other positives. I think we see the, you know, emerging opportunity in the maintenance costs coming down, obviously less overall elements of the maintenance of our fleet. Some of those other operational costs coming down as well. We do see and we've still got an emerging view on the overall efficiency of the systems, right? That becomes, and I was talking about that earlier, around the ecosystems that we're gonna have to operate these in.
There'll be changes in costs. We'll see some changes in the way we operate the mines, which may also have an impact on our overall, operating costs. I don't know, Brandon, do you want to add anything to that?
I'll add a bit. I think there's clearly, in a way, a bit of an OpEx to CapEx conversion that happens as part of putting in renewables. If you have a look at what we see in the market today in terms of what renewable energy sources cost and how competitive they are, and I'm talking about the levelized cost of energy. You can clearly see a future state where there are going to be OpEx benefits associated with decarbonization, but they do need to be clearly weighed against the capital you have to invest to achieve those outcomes. I think another key consideration is, you know, ultimately, what the cost of offset credits are gonna be in the market as well.
You know, we tend to look at a lot of these things as pure play investments, excluding the cost of carbon. When you put the carbon cost overlay on top of that, you can see a future world where the penetration of renewables, you know, at some point in the future starts to be attractive.
Hi. Hayden Bairstow from Macquarie. Question for Hugh. Just interested in your thoughts on the iron ore cost curve and how you think that actually evolves through this whole decarbonization process. Are we likely to see a rise and then a fall longer term? Just, and there's obviously a lot of moving parts to that and then the confidence in that outlook in your sort of longer-term view on iron ore prices.
Okay. Thanks, Hayden. I'll also defer to Rod, as someone who's been thinking about VIU his whole life. In terms of how the cost curve is going to evolve.
I think VIU and the relationship between regulatory carbon pricing and the cost curve is gonna become even more influential over time. At the moment, it's not particularly influential 'cause the clearing market for iron ore is into China, and China's steel industry has not yet been wrapped up into their ETS, and the ETS is anyway trading at $5 or $6 a ton. It's relatively immaterial at the moment. There will come a time when it is not immaterial, and the clearing market for iron ore will have a material iron ore price, and that will actually flow through the VIU. Netting back, including the carbon price, so your assumption on steel margin, what the upstream versus downstream distribution of pass-through looks like, it will actually become a much bigger factor than it is now.
Did you wanna talk about carbon and VIU, Rob?
Look, I think, you know, today, VIU, which is really your quality price versus quality spreads, are a function of the impact of the quality on the fuel rate and the productivity of the process. As we move into a world where there's a price on carbon above and beyond the cost of coke, namely there's a carbon price, it will naturally cause those spreads to widen, right? Back to your question a little bit, like, at the end of the day, this industry is gonna solve for the most economic pathway, right? Is it everybody goes out and beneficiates to avoid those increasing spreads, or do we solve it in the steel making stage? The reality is it'll probably be somewhere in between. It'll be a combination of both.
Yes, in a rising world, your spreads around quality will widen. So if you have someone who's a low-quality producer at the shoulder of the curve, their costs will in effect increase. If you have a better quality, it might pull the price down. It's a question of who's, you know, sitting up there at the shoulder. Yeah.
Thanks. Hi, it's Jack Gabb at Pendal. Just a follow-up on the decarb OpEx saving, if that's all right. I guess, first, just to be clear, the 690 million liters of diesel that you referenced, is that a total WAIO diesel consumption? Just seems a little bit low relative to Fortescue, which I guess was 700. Then secondly, if we think about, let's just call it ballpark $700 million cost saving, the offset is another 900 MW, give or take. What's the operating cost of that 900 MW?
Let's just go on the diesel. Yes. Those are total diesel. That is our total diesel usage. I think if you were to compare it to the competitor you mentioned, actually their overall emissions was very similar to ours, even recognizing the point, the differential in the cost of production. No, that's the correct diesel number for us. Just tell me again the second part of your question. Apologies. Make sure I get that right.
The main offset, I guess, that you highlighted is that you need another 900 megawatts of-
renewable power.
What is the operating cost of that 900 MW?
The operating cost. That's it. Look, what we'll say on that is we're exploring all options when it comes to the operating cost of that particular power. What we are interested in is how we get there, and how we get there might be build, it might be buy, it might be a hybrid of each of those. I think until we've really firmed up that pathway, it's too early to say the operational cost of that.
Listen.
I'll just add to that quickly, which is, listen, I think Anna touched on a really important point. I mean, we've got choices to try and build out entirely on your own. Or you have the option to actually ultimately end up in a larger scale grid connected system with pretty efficient deployments over time in terms of larger scale renewables and so on. We need to be really careful to not assume a sort of CapEx, low OpEx universe because the ultimate choices we make in terms of how we commercially, you know, either build out ourselves or secure from the market depends ultimately what that OpEx is gonna be. Because the capital investment goes in.
If we choose to follow a commercial route, we're gonna see the full capital cost coming through as an OPEX component into our business. Now, as we're shaping up all of those various permutations, we will end up at some number, but it would be sort of premature to try and speculate exactly what that would be.
Thank you. Hi, it's Tabank Hlako from SBG Securities. I've got a couple of questions around your deleterious elements. Even though South Flank comes with an increase in lump, it also comes with higher alumina levels. While R&D is going on to try and sort of improve those, it's still a key constraint in current DRI plants. Could you, one, tell us, you know, what the average level of alumina is at South Flank? Secondly, is BHP considering beneficiating that, or will you just try and blend it to lower levels? Or rather what do the alumina levels look like for your future projects such as Ministers North? Thanks.
Rob, do you wanna handle the first one on the grade, and then I'll pick up the second?
I haven't got the specifications in front of me. You should talk to the specs. I can talk to what the impact of the alumina is in terms of pricing.
Listen, I can't talk to the specific alumina numbers at South Flank, but to your question in terms of
The beneficiation. All the study work we've done to date points to the ore most amenable to beneficiation being at Jimblebar. Our activity is very heavily weighted to what we can do with the Jimblebar mine. At South Flank, we do not currently have any plans for beneficiating that ore. I think what we're seeing coming through is pretty good iron levels, pretty good lump levels. You know, and our first focus is really delivering on the project commitments, which was to lift the overall grade for Whyalla by the 1%, and then also to try and push the lump up to that 30% to 33% range across the business. In terms of the specific alumina, I'm happy to take something like that on notice and come back to you.
I think it's 2.2, I think, the spec, but just a quick comment on that. The thing that drives energy and productivity in the steelmaking process today is primarily the blast furnace. By the time the ores get to the blast furnace, you've removed the chemically combined water. We call this LOI, right? Yandi has an LOI of 11%. MAC has, I think, I haven't looked at the data for a while, but 5.5. By the time they get sintered and the material arrives in the blast furnace, where it really drives the economics of the process, Yandi's Fe has gone from 57 to 60 whatever, one or something. Its alumina has actually effectively come up. The same with MAC, but it not as much, right?
What really matters in terms of the economics of making steel is the ratio of the alumina to the iron. How many alumina units do I get per iron unit? When you look at Yandi and MAC, they're not altogether different, right? Yandi has a slight advantage over MAC on a calcined basis or a heated basis. It's always a little bit misleading just to look at the alumina and iron without factoring in that LOI.
Thanks very much. Amos Fletcher from Barclays here. I just wanted to ask one question around the pathway towards 300 million tons over the next five years. Is it relatively long-dated over that timeframe? And then potentially, I guess, also asking around the timing to get to 330. It seems like, I guess, the pathway to 300 is 2027. The studies won't be done till 2025. Is it reasonable to assume we're looking at 2028 plus for that 330? Thank you.
The pathway to 300 is something that clearly has more definition to it. I think you're gonna see when you do the visit, PDP-1. I think what's critical to bring through sustainable 300 is we've got to do the upstream mine development to support the underlying port debottlenecking. A mine development of that size, where we're actually looking is we're looking pretty closely at ore bodies that are surrounding effectively the underutilized Yandi latent infrastructure. We would need to bring you know one of those satellite ore bodies into operation to then sustainably deliver that number. You know, we still got a few years to go before we reach that point.
In terms of the pathway to 330, we're pretty early in studying the 330 option and, you know, the normal delivery cycle of something like that is also a number of years, so it would definitely be towards the back end of the decade.
This is Sam Kendall from ING. High level, historically, I think BHP was number 3 in the cost curve. You've moved to number 1. My question is, how did you get there? Then, how are you gonna stay there? Is it perhaps simplistically geological or operational? Is it in your control to stay there, or is it up to what others do as well? I know you don't like to answer these questions, but.
Excuse me. I'll start, and then I'll hand over to Kristy to make a couple of comments. Listen up. I think we've been working on productivity for many years, particularly in the Whyalla business. We've done a number of things over the years that have really supported us. I mean, it's a highly integrated business, as we know. How we bring mines, the rail infrastructure, and the port together, I think has been a critical element for us to understand where our constraints are and to actively work on them. You know, in my speech, I mentioned the IROC as an example. I mean, that was a pretty seminal moment in sort of shifting away from a mine-by-mine approach to a more integrated approach.
What we've done is really focused on putting in place really strong operating systems, really strong operating discipline. You know, years of going through a continuous improvement process, focusing on cost out, cost recovery. You know, and with the operating system more recently, really trying to empower our teams to pursue productivity opportunities and to find, you know, to try and create an organization where we've got thousands of problem solvers actively trying to find the next opportunity. I think the story of Whyalla was one where I think a team has come together. We really do deeply understand the business today, where the constraints are, how we act on those constraints. And how we really focus the sort of collective energy of the organization on the constraints.
We've been doing that for some years, and I think the product of that is some of the performance we can see today. To the second part of your question in terms of how secure it is, and you know, what are the prospects going forward in terms of things like inflation and so on, I'll let Kristy make a couple comments.
Sure. Thanks for the question. Look, we're really proud of our position as the world's lowest cost iron ore producer. It's when we're providing guidance to the market, it's something that we really stand by in WA and more broadly across BHP. When we do look to provide the guidance, and you will have seen, we've set our guidance for this year at $18-$19 a ton, and in the medium term, that will strengthen and come in lower at $17 a ton. We look at two things.
Firstly, the input costs, the costs that are largely market-driven, where we are essentially a price taker and we do see the lag effects of inflation coming into our cost base, with the likes of diesel, explosives, demurrage, things like that. And we do factor that into our estimates. You will see that in our guidance. The second lever, though, is the cost that we control. As Brandon mentioned, our focus on productivity, utilization, maintenance strategies, labor strategies, they all play a huge part, and this is where we look to offset all of the headwinds that are in relation to the market-driven costs. You might recall in Brandon's presentation, he mentioned that in FY2 alone, our productivity focus delivered $400 million in savings.
We're really confident in our ability to continue to go after that productivity, and we're not done yet, so we don't plan on giving up that lead anytime soon.
I'll just add one more comment. When you look forward, in terms of, I think sort of future productivity potential is an important question. We're gonna see good productivity gains through things like the rail technology project. We're pushing incredibly hard on automation. We can see the benefits that brings in terms of unit costs and similar. There's still a range of programs that can really offset some of the headwinds we're seeing more broadly acting on the industry. Some of it we will not be able to offset. Some of the diesel price escalation and so on is pretty significant.
There's a range of really good ideas we're still working through to keep delivering the sort of productivity track record we've seen today.
Thanks, Lachlan Shaw, UBS. Perhaps a question for Huw McKay. Looking out to the second half of the decade, do you think it's more appropriate to think about iron ore pricing at that time as more influenced by long run marginal costs or incentive price?
I would say long run marginal cost. I think we've signaled pretty consistently for many years that where we actually think long run marginal cost for this industry is going to be. It'll be a higher cost or lower value in use producer, either here or in Brazil. That's where we think the price will be set in the fullness of time. The starting point, though, is unexpected, as I indicated in my presentation, in terms of where we are in 2021. Many people would have given you exactly that diagnosis of long run marginal cost four years ago. We may get there at some point in time, but that framework is robust to the entry of West African ore. We've been signaling that for many years as well.
Hi. David Radclyffe from Global Mining Research. My question's in relation to the discussion about how you could deliver additional mine capacity for the 30-30 case. There's about half a dozen assets, it looks like, on your figure there that could be developed. How should we think about those, ranking those assets? You know, what are the key characteristics and the positives and the negatives of those? Is it just as simple as the proximity to Yandi infrastructure, or are there other characteristics that would help us understand which ones would be better?
I mean, as you say, there's clearly a broad range of options that we're looking at. I think when we first started looking at this, I think the closeness to Yandi infrastructure was something we were looking really hard at because the prospects of a capital-efficient outcome is clearly gonna be the case if we can do a development really close to that existing infrastructure. But we also wanted to look at things like the quality of the resource, the potential mine life. What is the mine replacement ratio that we would have in a 330 world versus a 300 or 290, for example? What does that mean then for the quantum of the development?
What is the scale of the development we would want to actually bring to the market, and what does that then mean for the rest of the portfolio? You know, I think we've tried to not just default immediately to what's close to Yandi, but to actually step back and have a look at it a little bit more holistically to understand, is there a situation here where we get really good grade, really good mine replacement ratios, leveraging off sort of strategies that have really worked for us well in the past. Potentially really promising unit cost prospects, capital intensity prospects, and so on.
I think we're being careful not to be oversimplistic about this and really look at it very carefully in terms of, you know, those things that are a competitive advantage for us in terms of large, long life, low cost mines and what that's done for this business over the years is probably a key consideration too.
Thanks. Just got one more question, and then we'll call it an afternoon.
Kaan Peker from RBC. Another question on 330. It looks like or it sounded like you actually painted a pretty positive picture on demand. Near to medium term, is it more around supply that's coming to the market that's a big question? On the project front, is it more around capital intensity and product quality that is being studied for the 2025 study dates? Thanks.
Do you wanna start with the first?
Well, I would just say that if I could summarize my remarks in one line, is that there is a prima facie case, a firm prima facie case to start studying 330 now. That is a holistic judgment based on a lot of moving parts in this particular industry. It isn't market determined, and there is no flag fall or trigger for this. We think there's a good case to look at it now, and that's Brandon's job to optimize our basin.
I mean, my simple comment would be, you know, WAIO at 330 million tons is, you know, prospectively a very competitive operation that really maximizes the installed infrastructure and equipment we have in this business. It will position us really well in the market going forward in the future. We're doing the study work to understand exactly what that looks like. Ultimately, whatever we produce will have to compete against the rest of BHP's portfolios through the capital allocation framework. We will see if it finds its way through. We're clearly actively studying it because we think there's something there.
Great. Well, thanks, everyone. We'll call an end to the webcast.