Rio Tinto has agreed the terms with its joint venture partners, including China’s Baowu, on developing infrastructure for the Guinean Simandou iron ore mine. With an estimated 8.6 BMT of reserves, it is the largest untapped deposit of high-grade iron ore in the world, with a target to come online in 2025. We foresee the potential for West African iron ore exports to increase global dry bulk tonne-mile demand equivalent by 13% in 2030 versus 2022.

The Simandou project’s production capacity stands at 175 MTPA, equivalent to c24% of Chinese imports from Australia today. Adding other projects to the mix, we estimate potential for Guinea to substitute c30% of China’s 2021 imports from Australia by 2030. The benefit for dry bulk shipping is added tonne-mile demand, as the WAF-China trade lane is 3x the distance to China from Australia. We therefore estimate added WAF tonne-mile demand to potentially surpass Brazilian demand in 2026 and may equal 70% of tonne-mile demand from Brazil and Australia combined in 2030. We note that replacing Australian iron ore volumes with Guinean adds distance to Australian exports, as seen recently with the Chinese import ban on Australian coal increasing average sailing distances 6.5% from 2019 to 2022.

This follows yesterday’s announcement that China is considering lifting the import ban on Australian coal, which we believe to be neutral for on distance effects but signals as an attempt by the Chinese government to facilitate the post-pandemic demand recovery which could imply more Chinese imports.