Iron Ore Insights: Billion-Dollar Investments Say It’s Not Over - Fat Tail Daily

In turbulent markets, James Cooper highlights why an awareness of our biases can transform how we invest. Read on to discover why it’s essential to recognise your biases and how they can be used to your advantage.

All investors have biases.

And these biases tend to have a negative impact on our judgement.

For some, that might mean being overly bullish in a surging market.

Others might levitate to being overly cautious and unable to act on their conviction.

For my part, I have an overly optimistic bias. That’s my nature.

But whether you’re a perennial bear or a hopeless optimist (like me), the important thing is to understand your flaws. We all have them.

By understanding mine, I try to reign in my positive outlook. Seeking out reasons to be pessimistic!

That could mean looking at an investment from the point of view of a seller.

Recognising my biases allows me to pause… deliberately forcing myself to take my time before making a decision.

But here’s something else I’ve learned…

Optimists (like me) are much better off focusing on contrarian markets versus those already swelling with excitement!

Being an optimist in a weak market helps me find the kernel of information that might spark brighter conditions ahead — a potential turnaround story.

And that’s what I continue to uncover in the maligned iron ore market

On Monday, I explained why investors shouldn’t view the iron ore market as a sector in long-term decay. As many in the mainstream would have you believe.

One aspect brightening its outlook is the changing dynamic of Chinese steel demand.

Today’s market is far more diverse than a decade ago.

New builds for Chinese real estate construction once contributed around half of all steel demand in China; it’s now less than a quarter.

Today, machinery construction is the most critical driver of demand.

This partly explains why Chinese iron ore imports reached a new record high in the second half of 2024.

This fact is lost on most iron ore bears. In their heads, Chinese real estate construction will ALWAYS be the primary driver!

Anyway, that’s the demand side.

What about Supply?

Earlier in the week, I detailed why the supply dynamic is not as weak as most imagine.

The fear is that Guinea’s Simandou province will swamp the market with additional supply and wreak havoc on Australia’s iron ore monopoly.

But as I highlighted on Monday, this region will only produce around one-tenth of Australia’s total annual production.

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It’s not the giant some make it out to be. It also assumes production will hit full tilt over the coming years.

Yet Guinea lacks mining expertise and infrastructure and has a history of geopolitical uncertainty.

But there’s something else countering the one-way negative traffic on iron ore…

Yesterday, I highlighted to my paid readership group at Diggers & Drillers the major growth deals happening in the iron ore market.

In late January, billionaire Andrew Forrest launched an off market bid to acquire Red Hawk [ASX:RHK].

This junior owns the Blacksmith iron ore deposit just 30 kilometres west of Fortescue’s Solomon operations in the Pilbara.

Meanwhile, Rio Tinto [ASX:RIO] announced that it would invest $1.8 billion to develop the Brockman Syncline project in the West Pilbara.

And that’s despite its giant Simandou project in Guinea coming online later this year.

Meanwhile, in February, Brazilian iron ore giant Vale announced a $12 billion investment to expand its Carajas project in northern Brazil.

All of these announcements have occurred within the last few weeks.

So, what’s going on?

Why are the majors pouring billions into iron ore growth projects despite a seemingly downbeat price outlook?

As I stated to my paid readership group, watching these insiders is essential.

Iron ore miners unanimously hit the pause button on development projects last year.

Watching and waiting to see how far Donald Trump would push ahead with his tariff agenda against China. But I believe that threat is now fully baked in.

The majors are rapidly pivoting back towards long-term growth in the iron ore sector.

Who knows what these insiders know or can see on the horizon, but right now, there’s a high-level conviction that demand will remain robust.

For investors, it pays to take notice.

The corporates making these decisions have a far better pulse on what’s driving future demand and supply versus the everyday punter.

So, watch this development carefully.

Regards,

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.

With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One.