China about to launch new Pilbara development!

Pig’s bottom, at the AFR:

A Chinese state-owned entity will seek to revive a $9.7 billion mining rail and port project in Western Australia, in a move that could unlock the nation’s next iron ore export province.

Sinosteel has acquired Japanese giant Mitsubishi’s interests in the long-stalled Oakajee Port and Rail project, in a deal that comes in the strongest year for iron ore prices since 2014.

…Sinosteel has not floated any magnetite concentrate plans for Oakajee, and in the immediate future the company is expected to focus on its existing iron ore mines in the region, which are conventional “direct shipping ore” mines extracting hematite iron ore.

Oakajee is the great white hope of Pilbara iron ore. Sadly, it is lowly magnetite ore requiring very expensive processing to be a high grade iron ore steel input.

We need only need look to Sino Iron further north to know how that could work out.

Sure, China will be seeking higher grade ores over time to fight pollution but the price of 65% iron ore is still going to fall a long way from where it is today given the structural slowing in Chinese growth and steady upgrading in scrap production. The entire seaborne market is likely to be forced to retrench volumes as this transpires over the 2020s.

I interpret this latest Oakajee dream more as the kind of counter-cyclical signals we saw in 2011 as iron ore assets changed hands furiously at the cliff’s edge.

David Llewellyn-Smith

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