Baosteel’s $5.8 Billion Iron Ore Project Seen Delayed to 2020

A Chinese-led A$7.4 billion ($5.8 billion) iron ore project in Western Australia looks to be the latest casualty of the price decline, with Wood Mackenzie Ltd. estimating it’s unlikely to begin output before 2020.

“Mindful of the volatility in the iron ore market,” the partners in the Baosteel Group Corp.-led West Pilbara iron ore mine, port and rail development, deferred until late next year a decision on whether to proceed, one of the participants Aurizon Holdings Ltd. said today in a statement. A decision had previously been planned for early 2016, according to Aurizon.

To deliver the initial capacity of 40 million metric tons a year the project requires the construction of 280 kilometers (175 miles) of heavy rail and a port facility at Anketell Point, Aurizon and Baosteel said June 20, when Chinese benchmark iron ore was trading at $92.13 a metric ton. It traded at $61.40 a ton on Friday.

“You are looking at a minimum of four years to do all of that, and that’s the best case scenario,” Andrew Hodge, a Sydney-based analyst at Wood Mackenzie said by phone.

Under that timetable, the project wouldn’t begin production before 2020, Hodge said. Baosteel and Aurizon previously said first shipments were expected in 2017 or 2018.

Aurizon spokesman Mark Hairsine declined to comment on the probable delay to first production. Baosteel and fellow partner American Metals & Coal International didn’t immediately respond to e-mailed requests for comment. Posco, which has about a 25 percent stake, didn’t immediately respond to a phone call seeking comment.

Cutbacks

Iron ore’s 40 percent slump in the past year has seen BHP Billiton Ltd. curb the pace of its supply expansion and Vale SA, the largest producer, signal it may cut some higher-cost output. About 22 mine projects with capacity of about 140 million tons were canceled or suspended in the six months through December, according to Bloomberg Intelligence.

BHP’s decision last month to defer a $600 million project to reduce bottlenecks at Australia’s Port Hedland saw iron ore last month jump to its biggest gain since 2012. By contrast, the delay to the West Pilbara development may not move prices, according to Hodge.

“Most people were not factoring this into their price calculations,” he said.

Aurizon has 15 percent of a half share in the West Pilbara project, with Baosteel holding the balance, according to filings. The remaining 50 percent is split between AMCI and Posco, South Korea’s biggest steelmaker.

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