At Narrowboat Media, there is limited intention to write about the iron ore industry; given it is so well covered in other sources.
However, in a very abridged form, I wanted to set-out some interesting facts about this industry
Currently China sources 60% of its iron ore from Australia because it has a clear quality and freight-cost advantage vs. Brazil
In 2020 shipments of iron ore from Australia increased by 31 million tonnes and totalled 867 million tonnes
China has set about obtaining a major competing source being the Simandou mine (100Mt production capacity, expected to start in 2025/26) in Guinea. Rio Tinto does own 45% of the mine
Developing this mine is not without operational hurdles
In Guinea there are no mines of this scale (e.g. other China backed ventures are c.10Mt capacity)
Additionally, to make that happen, they plan to build a $US14 billion ($A18 billion) railway through the Guinean countryside – the likes of which West Africa has never seen before.
According to Glencore, Simandou will grow to a 200-250Mt exporter over time
Using these variables– China could replace 12%-20% of Australia’s current supply in 4-6 years’ time from this one mine
For now, China is not going to overnight replace Australia’s iron ore supply. However, their incentives are aligned to search for a replacement.
Losing +100MT (or even 200-250MT) of supply in 5 years’ time will certainly hurt Australia – but it is not apocalyptic (especially given how rapidly supply is growing in 2020-21)
That being the case – when Glencore makes the press that the iron ore market being ripe for disruption; we should watch this space.
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