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Commodity markets are bracing for a fresh wave of supply from Rio Tinto and Chinese steelmaker Baowu’s $US23.2 billion ($34.3 billion) Simandou iron ore project in Guinea when exports begin in November.

“The big elephant in the room remains Simandou, it is coming sooner than expected, and now conservative ramp-up forecasts are under scrutiny,” RBC Capital Markets analysts noted following the broker’s annual Global Mining & Materials Conference in New York City.

Declining grades

Westpac’s Rennie is also concerned about the growing presence of higher quality ore, including from Simandou where ore grades are 66 per cent in places.

That means the amount of iron in Simandou’s ore is far higher than Australia’s biggest exporter Rio Tinto, which last month downgraded the quality of its “Pilbara Blend Fines” product for the first time.

Rather than containing 61.6 per cent iron, each tonne of ore will contain 60.8 per cent iron; the changes will take effect between July and September.

The deteriorating quality of Australian iron ore prompted Platts, part of S&P Global Commodity Insights, to propose changing the benchmark grade of its iron ore index to 61 per cent iron content, from the current 62 per cent.

“The outlook for new supplies of higher grade ore from the Simandou mine in Africa will see a gradual decline in the pricing of Australian 62 per cent FE (iron),” Rennie said.

Westpac believes it is only “a matter of time” before iron ore falls below $US90 a tonne and beyond. The banks forecast prices will average $US86 a tonne in the December quarter and fall even lower in 2026.