Commencement of operations at the Simandou mine unlocks a new era of long-haul iron ore flows

China’s shifting iron ore import strategy

In Brazil, Vale supplies more than 80% of the country’s iron ore and has shipping arrangements with COSCO and other Chinese companies. Therefore, a spike in iron ore imports from Guinea is unlikely to cause a decline in the iron ore trade on the Brazil-China route. Since China is involved in Guinea's iron ore investment, most of the Guinean iron ore is likely to be exported to China. Meanwhile, China’s political relations with Australia have been strained, and it is more probable that a rise in Guinea’s iron ore supply will prompt Chinese importers to shift away from Australia to Guinea, boosting shipping demand. 

Source: Drewry Maritime Research

Additionally, high-Fe content iron ore provide the high-grade input required for low-emission steel, making it crucial for the global green steel transition.

DRI-EAF and hydrogen-based steelmaking needs DR-grade ore (67%+ Fe), but such ore is extremely scarce, and only a small share of the global seaborne market meets this threshold. Without high-grade ore, green hydrogen DRI cannot scale. Net-zero pathways (2050) call for a major shift from blast furnaces to DRI-EAF. The structural shortage of DR-grade projects makes high-grade deposits such as Simandou (65% Fe, near DR-grade) strategically critical for green steel.

With trade routes getting longer, Capesizes get stronger

Assumption: A spike in imports from Guinea will lead to an equivalent decline in China’s iron ore imports from Australia.

The shift in iron ore trade flows from Australia-China to Guinea-China will boost the vessel utilisation of Capesizes. Once Simandou reaches its targeted 120 million tonnes of annual exports, most likely by 2030, the Guinea-China route will require almost 180 Capesizes compared to 64 vessels needed to transport the same volume from Australia due to the significantly shorter sailing distance. The Guinea-China round voyage is more than 90 days, almost three times the 30-35 days Australia-China rotation. 

As a result, each Capesize operating on this route completes fewer voyages per year, increasing vessel demand for the same volume of trade. This shift in trade will lead to a net demand of 116 additional Capesize vessels, representing one of the largest single tonne-mile expansions anticipated in the dry bulk sector in this decade.

Source: Drewry Maritime Research

Although the freight rate between Australia-China is one-third compared to Guinea-China, making Guinea’s ore seemingly more expensive, China is still likely to prioritise sourcing from Guinea. This is because Guinea will supply high-grade, low-impurity iron ore (65% Fe), a similar edge that Brazil has, compared to Australia’s predominantly 59–61% Fe ores, which requires more blending to meet the required quality standards.

Consequently, the shipping cost structure of Brazil and Guinea will be broadly comparable, and once Simandou reaches full-scale production, its cost curve is expected to be similar to Brazil (if not low). Moreover, China’s objective of diversifying away from Australian supply, combined with its massive investment in Guinea’s rail and port infrastructure, makes economic and strategic sense.

This will push charter rates up on major routes and not only on West Africa-China, as fewer ships remain available for flexible deployment. Overall, the development of Simandou will create a structurally stronger Capesize freight market, with strong earnings across global routes for years to come.

*  YTD average.
Source: Clarkson’s, Drewry Maritime Research