Rio has delivered the first ore from the Gudai-Darri iron ore mine, its first greenfield project in the Pilbara, Western Australia, in more than a decade. Gudai-Darri will help underpin future production of the company’s flagship Pilbara Blend product.

Gudai-Darri (formerly Koodaideri) has an expected life of more than 40 years and a nameplate capacity of 43Mtpy - expected to be reached in 2023. The capital cost for the mine is estimated at US$3.1Bn. Rio Tinto’s production has been constrained by the depletion of its assets, while the commissioning of Gudai-Derri and the ramp-up of brownfield mine replacement projects were impacted by COVID-19 restrictions, including labour access and supply chain issues.

Rio Tinto’s Pilbara system capacity is estimated at 360Mty.  Its 2022 iron ore production guidance remains unchanged at 320-335Mt, compared to 320Mt in 2021, although the company flagged ‘risks around the ramp-up of new mines, weather and management of cultural heritage. Project Blue forecasts a 2022 production of 323Mt.

Global iron ore production has been constrained across the industry due to bottlenecks, operational issues and COVID-related restrictions. BHP is forecast to post only a marginal production increase in 2022, while Vale will not get its production back to the levels enjoyed before the Brumadinho dam accident until late in the decade. This market tightness has, so far, provided support to iron ore prices, offsetting weak demand from China which is still being impacted by its ‘zero-COVID’ policy.  It is unclear how things will develop in China, but the impact will be significant.  

Iron ore shipments from Australia and Brazil have started to increase, due to operational improvements and seasonality, but Chinese demand remains low. Low demand and high raw material costs have impacted steel margins and some mills have been reported to start maintenance work. The last couple of days have seen the iron ore price drop well below the US$130-150/t range of the past few months to US$111/t.  A rebound in the Chinese economy would bring the iron ore price back to its previous levels but in the short-term, it will remain volatile and driven by macroeconomic news flows.