Originally published by Adrian Rauso of The West Australian
The big four ASX-listed iron ore stocks collectively lost about $16 billion on Thursday after the “Pilbara killer” mine in Africa beat expectations.
Surging exports from the massive Simandou iron ore mining complex in Guinea soured price sentiment for the steel-making ingredient.
Iron ore futures sunk nearly $US2 to about $US102 per tonne — its lowest point since early March amid the growing prospect of a supply glut.
First ore was shipped from Simandou’s Morebaya port in December and exports have ramped up quickly to 2.2 million tonnes in May, according to ship tracking data from Kpler, significantly higher than April’s record of 1.3mt.
Shares in Australia’s iron ore majors took a big hit on the news — Fortescue slumped 4.1 per cent, BHP shed 3.3 per cent and Mineral Resources lost 2.3 per cent.
Even the dual-listed Rio Tinto, which has a 45 per cent stake in blocks three and four of the sprawling four-block Simandou complex, was not spared from the market carnage. Rio’s ASX shares finished down 3.3 per cent.
Simandou has been dubbed the “Pilbara killer” over worries its higher-grade and lower-cost mines will eventually supplant Western Australia’s Pilbara region as the world’s premier jurisdiction for iron ore production.
Market analysts were expecting Simandou’s ramp to be slow following multiple deaths on site, worker strikes in May and a logistics bottleneck.
“The consensus at the start of the year was for a slow, constrained first half given the rail logistics bottleneck,” DBX Commodities chief executive Alexandre Claude told Bloomberg.
“The May numbers suggest something has shifted, likely the improving loading cadence at Morebaya as port infrastructure matures.”
A Guinean government push for more efficient operations at Simandou could be partly behind the recent export increase, according to dry bulk advisory firm Ifchor Galbraiths.
“It’s a way to optimise the royalty payment,” Ifchor’s head of research Vincent Lemaitre said.
The export increase comes at a delicate time for the iron ore market as China’s steel demand wanes and inventories rise.
Additionally, China’s main iron ore procurer — China Mineral Resources Group — wants to shave down the huge profit margins the Pilbara’s iron ore producers have reaped for years.
CMRG’s latest target is reportedly Andrew Forrest’s Fortescue.
BHP recently resolved a nine-month contract standoff with CMRG but Tim Day, BHP’s WA iron ore boss, foreshadowed bruising negotiations for the forseeable future.
“It’s been a tough nine months for the renegotiation of the contract, but we’re through it now, which is the good part. But it will be [tough] again next year,” Mr Day said last week.
“That concept of renegotiating and getting more complex will just continue from here on.
“Now, what does that kind of mean for Australia’s iron ore industry . . . you will see over time that this will continue to play out that way, and the power and the size of China just has that impact.”
