Simandou to provide Rio Tinto optionality to feed green steel demand, CEO says

Rio Tinto Group's giant but long-delayed Simandou project in Guinea will benefit from green steel demand, CEO Jakob Stausholm said on a July 31 media call.

High-grade iron ore, expected out of Simandou, is more amenable for electric arc furnaces to produce green steel. China in particular may be a major importer of Simandou ore as the country decarbonizes, analysts said.

Rio Tinto said July 15 that all conditions have been satisfied to develop Simandou, which Stausholm said is the world's biggest greenfield mining and infrastructure project.

While China's seasonally weak electric vehicle sales have helped dampen lithium prices, Stausholm is "cautiously optimistic" about the Asian giant, whose decarbonization drive may not be fully appreciated.

"There is a lot of demand from the industrial sector and from infrastructure, and one thing which is embedded in it but that people perhaps underestimate is the green transitioning in China, [which] is enormous," Stausholm said on the half-year results media call.

Rio Tinto CEO Jakob Stausholm. Source: Rio Tinto Group.

S&P Global Commodity Insights estimates Simandou could be producing about 55 million metric tons a year by 2028, with China "likely to be the major recipient as the country looks to decarbonize its steel industry," Paul Bartholomew, a senior Commodity Insights analyst covering ferrous and aluminum, said in an interview.

"[Simandou partner] China Baowu Steel Group Co. Ltd. has a memorandum of understanding in place with Rio Tinto to decarbonize the steel value chain and is understood to have inked offtake agreements with other stakeholders at Simandou," Bartholomew said. "The Chinese steelmaker is supplying high-end steel to Japanese and US carmakers so will want to ensure the quality of its raw materials inputs, and therefore its steel, at a time of growing demand from manufacturers for 'greener' steel."

Rising domestic demand and growing exports will propel Chinese production of new energy vehicles to increase through 2028, Abby Chun Tu, principal research analyst for S&P Global Mobility, said in an email.

Cautious optimism on China

Asia iron ore seaborne prices dipped below $100 per dry metric ton for the second time in four months July 30 amid concerns over China's still-ailing property sector.

China's EV market grew at a slower pace in the first half of 2024 compared to the year-ago period, Chun Tu said. However, "overall demand for battery EVs and plug-in hybrid EVs remains solid due to rising consumer acceptance of alternative powertrain vehicles, an expanding fast charging infrastructure, as well as declining prices of new models."

Mobility sees the penetration of new energy vehicles — including battery EVs, plug-in hybrid EVs and range-extended electric vehicles — in the Chinese passenger vehicle market to approach 50% in 2024 from 36% in 2023.

"The acceleration in the market's shift to EVs will continue to be helped by declining battery prices, a wider availability of models and the intense level of competition that exists in the market," Chun Tu said.

Costly exercise

Experts have long seen 2025 as optimistic for Simandou, given the scale of works needed, such that iron ore prices were rattled in 2022 by Rio Tinto's in-principle approval of the project.

With iron ore grade "fading down" in Western Australia's Pilbara, the world's biggest producing region, Stausholm said the company is "in a unique position because we have [Iron Ore Co. of Canada Inc. and soon we will have Simandou" in production, expected in 2025.

Stausholm said the optionality to blend Simandou iron ore with lower-grade ores elsewhere presents "an opportunity to get more value out of our great production out of the Pilbara."

Rio Tinto's total share of capital investment in projects globally in the first half of 2024 was $3.7 billion, but the company expects this to accelerate in the second half as the miner funds its share of the codeveloped rail and port infrastructure being progressed with Winning Consortium Simandou, Baowu and Guinea, which are developing Blocks 1 and 2, according to Rio Tinto's July 31 half-year results.

Rio Tinto booked total attributable net earnings of $5.81 billion in the first half of 2024, up 14% year over year from $5.12 billion, with consolidated sales revenue rising to $26.80 billion from $26.67 billion.