Is Simandou bad news for bauxite?

Mining and aluminium giant Rio Tinto is now focused on getting its Simandou iron ore project in Guinea up and running. Newspapers report that shipments will begin in 2025. 

Simandou is a huge project that has taken Rio Tinto years to realize. The initial production rate is said to be 120 million tonnes of ore per year. That's 10 million tonnes of iron ore going onto Capesize vessels in Guinea every month. 

Guinea is presently shipping about the same amount of bauxite every month, mostly to China. Although there probably won't be any conflicts of capacity landside, the same may not be true for the shipping market.

I don't have any data on this, but if I were exposed to variations in the landed price of bauxite, I would be checking to ensure the shipping industry has enough Capesize vessels coming through to support this increase. Of course, to some extent, Simandou iron ore may simply replace Australian or other ores, but it seems to me that freight rates can be very reactive to any changes in patterns. Simandou is a classic pattern disruptor.

Google tells me that there are some 500 Capesize vessels in the world today. But I have no information on new-builds or retirements. Let's assume an average capacity of 150,000 tonnes per Capesize vessel (They can be as large as 400,000 tonnes). Let's assume a turnaround time of 30 days from Conakry to Shanghai.  Sailing time is around 26 days, but we have to allow time to load and unload the vessel.  If Guinea ships 10m tonnes of bauxite and 10m tonnes of that other red dirt per month, that's 133 vessel loads. In month two, all those vessels are steaming their way back to Guinea, so a different set of 133 vessels would be needed. Some 40 per cent or more of the world's Capesize capacity will be booked for these two trades. Not all bauxite cargoes go to China, but enough of them are enough to make this rough test valid.

The rise of Simandou could presage a lift in the landed price of bauxite if the shipping industry isn't ready.

Image credit: AZ Global