RIO sets date for iron ore Judgement Day

On occasion, one can’t help wondering what drives Davos Man. It sure isn’t loyalty to one’s nation or fellow man. Greed is the thing.

There is no better example of this than RIO’s announcement yesterday that it has set the date for iron ore Judgement Day:

Rio Tinto said on Thursday that its Guinea subsidiary has formed a joint venture with the government and the Winning Consortium Simandou (WCS), paving the way for work to resume at the world’s largest underdeveloped iron ore deposit.

The deal is a breakthrough for Rio, after a setback earlier this month when the Guinea government asked the global miner and WCS to halt construction at the Simandou iron ore project.

The project is scheduled to commence in December 2024. Given the infrastructure challenges, it will probably be longer, though RIO’s expertise will certainly shorten it.

And that’s the point. What on earth is RIO doing building Simandou? As I coined this project many years ago, it is the “Pilbara Killer”.

How can we be certain of this?

First, it is a tsunami of iron ore. The first phase of SMB Winning’s project will produce 60-80mt of iron ore per year. It could possibly increase to 150mt. RIO’s share is another 100mt.

That is enough to pancake the iron ore price permanently. The price will drop to the highest marginal cost of production and wipe out Australia’s iron ore juniors.

And there are very good reasons to think that it will be much worse than that.

China is planning to materially boost its steel recycling output by 2025, plus its structural property construction adjustment will be well underway.

Put these together making conservative assumptions and the swing to iron ore surplus is mind-altering:

That is an excess of half a billion tonnes of iron ore in 2026. This is approximately double the surplus that crashed the iron ore price to $38 in 2016.

Shaking this much iron ore supply out of the seaborne market will eradicate every producer other than the big four: BHP, RIO, Vale and Simandou.

It will still leave these four competing over a glut of product that will keep the price at $20.

Finally, as China takes a hold of a large reserve of iron ore, it will dramatically reduce Australian leverage and make it much more likely that China will declare war on Taiwan.

If RIO were not to participate in the project it would be set back by years. Given it brings much of the iron ore expertise to the development, it may have torpedoed it forever. Vale was to be involved but got kiboshed owing to corruption allegations. So there is no obvious replacement.

Perhaps RIO should deliberately fall on its face in a similar fashion.

Houses and Holes
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Comments

  1. Well, there’s ample research to suggest that most corporations are run by psychopaths or people with that tendency.

  2. ErmingtonPlumbingMEMBER

    “Finally, as China takes a hold of a large reserve of iron ore, it will dramatically reduce Australian leverage and make it much more likely that China will declare war on Taiwan.“

    If we are so concerned about China’s ability to wage war then why aren’t the treasonous plutocrats who shifted so much Western manufacturing capacity to China not in jail?
    China wouldn’t be half as powerful as it is today Without 30 years of access to Western Consumers and businesses.
    It’s a bit late crying about it now after the horse has long bolted.

    • pfh007.comMEMBER

      Who is crying? Our free trade fundamentalists will be overjoyed.

      When I was banging on about an export volume auction years ago the free trade fundamentalists insisted that it was impossible for Australia to influence or control the price of iron ore.

      We were all Davos Men back then.

    • The Wizz of Ozz

      ( old australian proverb) BIG FISH EAT little fish but sometimes the little fish is poisonous then the little fish Eat the big fish

  3. pfh007.comMEMBER

    Super cheap prices for a fundamental economic input like iron ore?

    That sounds like a great gift to all mankind considering the importance of steel to building all the fancy renewable energy kit.

    Almost as good as an endless supply of super cheap backpackers and south sea berry pickers.

    Australia had a great run with fat profits on our iron ore and as we invested the proceeds so wisely “media rooms will always add value” accepting the day has come is fair enough.

    But then again we have been hearing about that mine in Africa and it’s 600 km railroad to the coast for at least a decade.

    How many broken sleepers by some anti-government mob does it take to derail a train or hold production hostage?

  4. Lol why would rio do that
    That’s like saying the apartment prices are going to crash because all the developers are going to develop and sell their land simultaneously
    It’s called iron ore banking, like land banking

  5. Muttafukaburrasaurus.MEMBER

    So naive.
    We’ll be using only carbon free recycled steel that stabilises the climate and improves the planet…. In the future.