Australia and Brazil's dominance of global iron ore pricing could be broken by a Pilbara-sized west African mining region that could undermine the nation's terms of trade, says Chicago-based economist Dale Hale.
At least 20 mines would open in the region spanning Liberia, Guinea, Sierra Leone, and the Cameroon by 2015 and their aggregate output could reach 600 million tonnes a year.
That's equivalent to 62 per cent of global production in 2012 and 38 per cent in 2015, the Mr Dale said during a visit to Melbourne.
"If we add this much supply, this could break the Australian-Brazilian cartel in setting iron ore prices," Mr Hale told AAP during an interview.
"This could finally set the stage for iron ore prices to decline in a meaningful way ... in five years."
Mr Hale said China had joined BHP Billiton and Rio Tinto's subsidiary RTZ Mining and Exploration as investors and explorers in the region.
Mr Hale is the founder of Chicago-based Hale Advisors and advises global asset management companies across the world including his role as a global economic adviser to Commonwealth Bank of Australia (CBA).
China was the world's biggest iron ore producer in 2010 according to a US geological survey, mining 900 million tonnes, or 37.5 per cent of global supply, all of which it retained to fuel its economic expansion.
China's iron ore is low-grade, unlike that of Australia and Brazil.
Australia was the biggest iron ore exporter and second biggest producer, supplying 17.5 per cent, while second largest exporter Brazil supplied 15.4 per cent.
Mr Hale warned that the west African supply surge could cut Australia's terms of trade - the quantity of imports that can be purchased by selling Australia's exports - because iron ore comprises over 25 per cent of total exports.
"It could depress your terms of trade after what has been an incredible boom," he said.
China's global sourcing ambition for iron ore was revealed in a speech by the chairman of the China Iron and Steel Association, Wu Xichun, at a Chinese government conference on commodities attended by Mr Hale earlier this month.
"In his speech (Mr Wu said) in the year 2015 China wanted to import half of its iron ore from Chinese-owned mines elsewhere in the world."
"(It will) be a big investor in the west African iron ore mines."
CBA chief economist Michael Blythe on Monday told CBA institutional banking clients in Melbourne that a slowdown in China or lower commodity prices could crimp Australian national income.
The commodity boom and positive China growth story had added $6,000 to Australia's gross domestic product per person over the past 12 years, Mr Blythe said.
"Effectively everybody in Australia has $6,000 worth of extra spending power per person per annum because of that China-driven commodity story over that 12-year period."
He said the Australian dollar was becoming a safe haven currency and was likely to stay strong over the long term,.
In the early hours of Saturday in offshore trading, the local unit set a post-float high of 102.94 US cents.
Brought to you by AAP
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