Amazon moment12/23/2023 ![]() ![]() China’s population is in decline, people believe China has overbuilt infrastructure, and its property market is in crisis. The previous massive iron ore expansion was built on the expectation of an emerging world giant in China. But most of all investors need a ‘narrative’ to believe in. If only! Capital needs to be invested, projects financed, staff found, and big risks run. The modern world tends to take raw materials for granted as if they just appear for our benefit to make iPhones and Teslas. There’s been little capital investment in future supply, but demand hasn’t gone down in the way people assumed years ago.įor some reason, the same logic is forgotten or ignored when applied to iron ore. Many in the market make the same argument about the oil industry, and it’s true for the same reasons. Granted, I can’t tell you how likely this scenario is.īut the iron ore majors have been chewing through their reserves for a long time, and the windfall from the juicy price since 2019 has returned to investors in massive dividends…and not new mines. If, for example, coal prices can soar to US$200 or US$300 a tonne, as they did last year, there’s no reason to think iron ore can’t do the same. There’s another scenario worth thinking about: that demand for iron ore keeps pressing ahead and the Aussie miners are already too stretched to lift production. ![]() Point being: Everybody is always worried that the iron ore market will go into oversupply and kill the price. Both are running at full speed to basically match what they did last year. ![]() Here’s another thing…both Rio Tinto and BHP released their quarterly production reports this month. And they make a big proportion of index weighting…hence why the ASX is back very close to all-time highs. The profits are huge for BHP, Fortescue, and Rio Tinto at this price. That’s a good sign for Australia.Īnd as stated above, iron ore is back to a booming price of US$120 a tonne. Granted, Simandou is not an Australian project.īut the fact that the Chinese are so willing to fund this suggests iron ore demand could stay robust for the next five years and potentially beyond. It shows the major drop off in iron ore capital spending over the last 10 years: Here’s a chart I shared with my paid readers in their last monthly report. It’s possible the world needs major investment into the iron ore industry to keep it well supplied. Generally, Aussie investors view Simandou the same way they did Amazon before its arrival here in Australia: with suspicion it’s coming to wreck the party for the incumbents. Whether Guinea can stay stable and clean to allow the project to start shipping iron ore out by 2025 remains to be seen. The Chinese look set to flex their muscles, at least in terms of money, to build the necessary infrastructure. And as yet there are no rail lines, bridges, or tunnels to get it there. The Simandou deposit is 550 kilometres from the coast. In this case, it’s not that the Chinese can’t find it, it’s just getting the Simandou ore to port that’s difficult. Simandou has hung over the iron ore market for years, something akin to the Spanish gold dream of El Dorado. The Australian Financial Review reports that the fabled Simandou project in the West African country of Guinea could be a lot closer to fruition than previously presupposed. The same month, we have the price going back to more than US$120 a tonne, we also find China pushing deeper into Africa. Everybody loves to talk about battery minerals, but iron ore is still where the big money is. ![]()
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