Western Australia increases iron ore port fees

The Western Australian (WA) state government will increase fees at the Pilbara port of Port Hedland by 25pc, raising an additional A$195mn ($151mn) over four years and adding to inflationary pressures on iron ore exporters.

The increase will add around A9¢/t to take state Port Hedland port costs to A45¢/t based on annual exports through the port of 540mn t. This is a fixed cost and will not reduce as prices ease. The increase is small for the iron ore mining firms that are earning rising profits because of near record iron ore prices, although it adds to the general inflationary environment in WA mining. It is more of an issue for marginal iron mining firms and those smaller firms planning to develop new mines.

Cash costs, which do not include royalties, freight and administrative costs, for large-scale producers BHP, Rio Tinto and Fortescue Metals are less than $20/t fob Australia, with BHP and Fortescue aiming for cash costs below $14/t. At an 62pc Fe price of around $200/t cfr China, these mining firms can afford to absorb cost inflation and can continue to do so as they have been profitable in iron ore through the price cycle for many years.

Costs are much higher at smaller mining firms, the largest of which is MinRes. Many rely on trucking ore to ports, which is more expensive than train haulage and more exposed to inflationary aspects of the WA economy, particularly higher labour costs. But a shortage of train drivers across Australia is also pushing up costs for the bigger producers.

MinRes received an average price of $138/dry metric tonne (dmt) for its iron ore during October-December, up from $80/dmt for July-September. At these prices the firm recorded a firm margin but its high costs make it vulnerable to any drop in iron ore prices, particularly for the lower grade ores that it and many other smaller mining firms produce.

These more marginal producers, which are more susceptible to rising costs, plan to bring on around 120mn t/yr of iron ore mining project capacity. But higher costs and a downturn in prices could affect many of these projects.

Iron ore royalties to the WA state rose by A$2.1bn during July-September compared with a year earlier, which is the level of increase that the Labor state government predicted for the full year to 30 June 2021. The increase is largely because of higher prices, with export volumes from the state up by 2.8pc over the nine months compared with a year earlier.

Argus assessed the ICX iron ore price yesterday at $199.25/dmt cfr Qingdao on a 62pc Fe basis, up from $188.55/dmt on 27 May, but down from a high of $235.55/dmt on 12 May. The 62pc Fe iron ore price was mostly below $100/dmt cfr China between mid-2014 and mid-2020.

By Jo Clarke