Macquarie analysts report that the spike in fuel prices following the Iranian conflict has meaningfully raised operating costs for iron ore producers, with Direct Shipping Ore (DSO) operators most affected and concentrate producers also seeing notable increases.
Cost impact estimates
According to Macquarie’s bottom-up modelling, DSO operations exhibit a diesel linkage in the range of 12% to 17% based on second half 2025 data, while concentrate-producing operations display a smaller linkage of about 7% to 9%. The firm’s assessment translates into cost increases of approximately 15% for DSO operators and around 6% for concentrate producers as a result of higher fuel prices.
Fuel and currency dynamics
Macquarie notes that average spot diesel rates measured in local currencies have risen materially versus the second half of 2025: roughly 65% higher in Australian dollars, 13% higher in Canadian dollars and 28% higher in Brazilian reals. At the same time, those local currencies have strengthened against the US dollar by about 6% for the Australian dollar, 1% for the Canadian dollar and 7% for the Brazilian real versus the second half of 2025. The combination of higher local-currency diesel prices and currency appreciation is driving higher C1 costs when expressed in US dollar terms.
Freight and product premiums
Higher bunker fuel costs have pushed up freight rates, and because the seaborne iron ore market largely clears in China, the freight gap between Brazil and Western Australia has widened. Macquarie estimates this has left Australian miners with an approximate $6 per wet metric ton freight advantage relative to Brazilian shippers.
Separately, disruptions to pellet plant operations in the Middle East and elevated natural gas prices have contributed to increases in lump and pellet premiums. Those higher premiums tend to raise the realised prices that companies achieve under Macquarie’s coverage.
Company-level implications
Within the firm’s coverage universe, Macquarie identifies BHP as well positioned to benefit from the current dynamics due to its low-cost DSO quality resource. Fortescue is highlighted as a potential relative winner because of a more advanced approach to substituting diesel, with potential cost savings of roughly $3 to $6 per ton depending on prevailing diesel prices. By contrast, Mineral Resources’ Pilbara Hub asset is noted as the most impacted, although Macquarie observes that a portion of its costs are offset through CSI income.
This analysis reflects Macquarie’s assessment of how fuel, freight and product-premium movements are translating into margin shifts across different iron ore operators, based on the second half 2025 linkage metrics and observed local-currency diesel movements.