Originally published by Daniel Newell and Katharine Gemmell of The West Australian
Surging exports from the giant “Pilbara killer” iron ore mine in Guinea have spooked investors in WA’s powerhouse producers of the steel-making ingredient
Exports from the Simandou project surged in May, six months after the first shipment to China, marking a milestone in the ramp-up of the high-grade mine that has the potential to reshape the global market.
Shipments from the project’s Morebaya port hit 2.2 million tonnes in the month, according to ship tracking data from Kpler, much higher than April’s record of 1.3mt. This compares with just 600,000t or less in each of the first three months of the year.
Shares in BHP, Fortescue and Rio Tinto all took a hit on Thursday following news of the higher volumes.
By 9am, BHP was off 3.5 per cent to $62.81, Fortescue had dropped 3.3 per cent to $21.20 and Rio Tinto — a half-owner of Simandou, along with Chinese partners — had shed 3.5 per cent to $187.61.
Simandou has been touted as a game-changer for the iron ore industry with 120mt a year expected to be shipped once the project is at full capacity.
The mine has four blocks — two owned by China-Singapore-led Baowu Winning Consortium Simandou and two by Simfer, a Rio Tinto and Chinalco joint venture.
However, the so-called “Pilbara killer” — a moniker that reflects worries it will displace supplies from the key producing region — has faced a series of challenges since shipping its first commercial tonnes late last year.
In addition to logistics bottlenecks, a contract worker died in an incident at the SimFer mine in February, while unionised workers at BWCS went on strike in May seeking better pay.
“The consensus at the start of the year was for a slow, constrained first half given the rail logistics bottleneck,” said Alexandre Claude, founder and chief executive at DBX Commodities, which also tracks the project’s exports and had May’s figure at 2.3mt.
“The May numbers suggest something has shifted, likely the improving loading cadence at Morebaya as port infrastructure matures.”
Dry bulk advisory Ifchor Galbraiths said some of the increase in April and May could be due to a government push for the two consortiums to work more efficiently together.
“It’s a way to optimise the royalty payment,” said Vincent Lemaitre, head of research.
Data released by the Guinean government in late April showed BWCS was ahead in cumulative exports in the first quarter, though Simfer’s March export rate suggested it was rapidly closing the gap.
Lemaitre said that some assets used in the country’s already strong bauxite industry have been redeployed to help the ramp-up in iron ore.
Ifchor Galbraiths predicts that as much as 8mt could be shipped in the third quarter, rising to 12mt in the last three months of the year. Rio Tinto’s official guidance is to hit full capacity in 30 months. Some analysts expect it to take longer.
Whether the recent surge marks a lasting acceleration will become clearer during the mid-year wet season, a challenging period for mining and logistics operations across the African nation.
The increase comes at a delicate time for the iron ore market, with China’s steel demand under pressure and inventories elevated. Traders are closely watching whether Simandou’s high-grade ore will begin displacing supplies from Australia and Brazil, or simply add to an already well-supplied market.
DBX’s Claude noted that the majority of year-to-date flows from Guinea have gone to China, the world’s largest consumer, but there’s no evidence yet that the high-grade ore volumes have been absorbed into steelmaking demand.
