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Finance is continuing to flow into the giant Roy Hill iron ore project in Australia, despite analysts expressing concern over the market’s outlook.

Korean export credit agencies (ECAs) Kexim and K-sure became the latest institutions to pledge support to the Pilbara project. K-sure is to lend US$1.2bn with Kexim issuing a direct loan of US$1bn late last year.

The Korean ECAs have pledged their support to a project which is 12.5%-owned by Posco, the Korean steelmaker.

Also in December, US Exim pumped almost US$694mn in direct loans into the project, in exchange for the purchase of mining and rail equipment from the likes of Caterpillar, GE and Atlas Copco.

Posco joined Japan’s Marubeni and Taiwan’s China Steel Corporation to inject equity into the project last year, after the project sponsor, Hancock Prospecting, required a cash injection to move forward. The trio took a combined 30% stake in the mine, a move which analysts say has helped galvanise the flow of debt into the project.

Project sponsors are hoping to attract A$4bn from ECAs, with a similar figure coming from the commercial banking sector. It was initially hoped that the debt portion would be secured by the end of 2013, but closure seems to be some way off.

Kevin Murphy, an analyst at SNL Metals Economics, tells GTR that the prestigious investor base can be the only thing behind the ramping up in debt financing for the project. He cites the involvement of Gina Rinehart, the chief of Hancock Prospecting, Australia’s richest person and the fourth-richest woman in the world, as one of the main attractions.

“Not too many other projects could attract so much finance,” he says. “Gina Rinehart is just about the sole reason why there’s any finance being brought in – that and the joint venture partners, who are all respected companies who don’t tend to be silly with their money.”

Even before the iron ore from Roy Hill comes online, the outlook for the mineral is gloomy. It began this week (January 13) at its lowest price in five months, after five consecutive days of losses.

China purchases two-thirds of the world’s seaborne iron ore and imported a record amount in 2013. However, a slowdown in Chinese demand has long been forecast and with last year’s move to rebalance the economy from an investment-based to consumption-based approach is expected to bring things to a head.

The Chinese government has moved to consolidate the number of steel mills in the country, with overproduction meaning stockpiles of steel products rose 26% over 2013. In December 2013, China’s iron ore purchases fell by 5.6%. Domestic demand is expected to weaken, and the prospect of further iron ore still coming online seems to be arriving at a strange time.

In 2014, Australia (the world’s top iron ore producer) will increase its iron ore exports by 22.1%. Brazil is expected to increase its exports by 9.1%, with Vale leading the way. This is before Roy Hill and new facilities from Vale, Fortescue and Rio Tinto, among others come online (Roy Hill is expected to produce in 2016).

With no country in a position to fill the expected gap in the marketplace left by falling Chinese demand, prices can be expected to fall further still.

Financing Roy Hill has seen US Exim come in for severe criticism at home. US iron ore – mainly saturated in the states of Michigan and Minnesota – has been suffering in tandem with falling demand and prices.

A group of three senators wrote an open letter to the ECA in July 2013 expressing concern that “the proposed US Exim financing and the large amount of iron capacity that it would subsidise will… substantially injure American iron ore and steel producers and their employees that are competing in the same global marketplace”.

The loan has reopened the debate about whether US Exim “embodies corporate welfare”, or is a legitimate cause for the good, creating and supporting jobs at home.

In a statement issued to GTR, US Exim defended its actions, saying: “In recognition of the potential for adverse effects on the US economy associated with US Exim financing, the bank carefully weighs the cost and benefits of all transactions it is asked to support. Additionally, all transactions must demonstrate a reasonable assurance of repayment.”

The bank, then, is optimistic that the Roy Hill mine will prove a success, despite market conditions. But commercial banks seem yet to be convinced: as GTR went to press, none had confirmed debt financing for the project.

Last year, reports emerged that ANZ had extended a US$1bn bridging facility to the mine – a story which a source at the bank strenuously denied to this magazine. However, the banker did confirm that ANZ and other commercial banks hoped to be involved in the financing at a later date.