The joint venture between mining and metals giant Rio Tinto Group and State-owned China Baowu Steel Group to develop a new iron ore mine in Western Australia's Pilbara region will further meet the demand for iron ore in China, analysts said on Wednesday.

China's steel mills have been investing in overseas iron ore mines to ensure adequate supply of raw materials. China relies on imported iron ore for more than 70 percent of its needs, said Zhu Yi, a senior analyst with metals and mining at Bloomberg Intelligence, a market monitor.

"Domestic mines have comparatively lower grades and higher production costs compared to their global peers, causing steel mills to go overseas for the raw material," she said.

Rio Tinto and Baowu said on Wednesday that they will set up a JV to develop the Western Range iron ore mine project in Pilbara, with a total investment of $2 billion and annual production capacity of 25 million metric tons.

The project work is expected to begin in early 2023 with production anticipated in 2025. Rio Tinto will take a 54 percent stake and Baowu will hold 46 percent.

The two sides have also forged an agreement to sell up to 126.5 million tons of iron ore at market prices over 13 years.

Australia is the largest iron ore supplier for China due to its abundant resources and relative proximity, accounting for 67 percent of China's total imports in January-July, said Zhu.

Bloomberg Intelligence data showed Australia accounts for 55 percent of the country's total iron ore imports in 2021 and 61 percent in 2020, followed by Brazil (19 percent in 2021 and 20 percent in 2020).

"This is a very significant milestone for both Rio Tinto and Baowu, our largest customer globally," said Rio Tinto Iron Ore Chief Executive Simon Trott.

"We have enjoyed a strong working relationship with Baowu for more than four decades, shipping more than 200 million tons of iron ore under our original joint venture, and we are looking forward to extending our partnership at Western Range."

Trott said Rio Tinto and Baowu will also continue to work together on low-carbon steelmaking research, exploring new methods to reduce carbon emissions and improve environmental performance across the steel value chain.