Guinea set to supply iron ore from 2026
Development of the Simandou blocks in Guinea will not only increase the country’s iron ore exports but will also prompt Chinese importers to shift some iron ore imports away from Australia to Guinea, which will add to dry bulk shipping demand.
Guinea has already become the world’s largest supplier of bauxite and is now striving to register its presence in the global iron ore market. In 2019, a consortium of SMB and Winning International won the tender to develop block 1 and block 2 of the Simandou project, one of the world’s biggest untapped deposits of iron ore based in Guinea. The first phase of operations is likely to start in 2026, enabling Guinea to export 60 mtpa of iron ore. The second phase of the project could add a further 50 mtpa to the annual iron ore production capacity.
As part of the tender, the company will invest in associated infrastructure, including building a deep water port and railway system to connect the mining region to the port. In turn, this is expected to prompt other iron pre producers to explore mining options in the region, with the most viable candidates thought to be block 3 and block 4. Currently, Rio Tinto, Chinalco and the Guinean government own these blocks which are believed to hold a similar quantity of reserve as block 1 and block 2. If block 3 and 4 are developed along with block 1and 2, then Guinea’s annual iron ore production capacity will surge to 220 mtpa, equivalent to approximately 14.5% of global seaborne iron ore trade in 2019.
China to be the demand centre but imports to decelerate
China is the top importer of iron ore, accounting for 70% to global seaborne iron ore imports. Since Chinese investors have been increasing investment in Guinea, most of the Guinean iron ore is likely to be exported to China once operations commence in 2026.
China’s iron ore imports to shift away from Australia
Australia and Brazil are currently the major suppliers of iron ore to China, accounting for 65% and 20% respectively in China’s iron ore imports. In Brazil, Vale supplies more than 80% of the country’s iron ore and it already has long-term shipping arrangements with the Chinese Shipping company, COSCO. Therefore, an increase in iron ore imports from Guinea is unlikely to cause any decline in iron ore trade on the Brazil-China route. Meanwhile, China’s political relations with Australia have been under strain for a few years. In 1Q19, port authorities in China delayed the discharge of Australian coal amid deteriorating relations with Australia over the ban of Huawei Technologies. In such a scenario, it seems more probable that a rise in Guinea’s iron ore supply will prompt Chinese importers to source iron ore from Guinea instead of Australia. This, in turn, would lead to additional demand for dry bulk shipping.
Shift in trade pattern to benefit Capesizes
Guinea is 7,700 nautical miles farther to China than Australia, and thus, will employ dry bulk vessels for longer durations. To complete a round trip between Guinea and China, a vessel will require an additional 50 days compared with a round trip on the Australia-China route, which is already a Capesize route. Moreover, Capesize vessels are also gaining popularity on the Guinea-China route. Therefore, a shift in trade pattern will benefit Capesizes by increasing average haulage length.
To analyse the impact of iron ore mine development in Guinea on dry bulk vessels, we have made two assumptions. First, all of Guinea’s iron ore supply will be shipped to China. Second, Guinea’s combined annual iron ore production from block 1-4 will be 120 million tonnes (phase 1) in 2026 and will increase to 220 million tonnes (phase 2) by 2030.
The impact has been analysed based on two cases. In case A, it is assumed that China will absorb all the iron ore supply by Guinea and China’s iron ore imports from Australia will not decline with the rise in imports from Guinea. Meanwhile, in case B, the assumption is that increased imports from Guinea will lead to an equivalent decline in China’s iron ore imports from Australia.
In Case A, iron ore trade of 120 million tonnes from Guinea-China in 2026 will require about 165 Capesizes with another 140 Capesizes required by 2030 if exports rise to 220 million tonnes. In Case B, where iron ore trade from Australia-China registers a decline with the growth in exports from Guinea, net demand for Capesizes would still expand by 103 vessels in 2026 and further by 92 vessels by 2030.