Rio Tinto’s Iron Ore Target Cut Seen Bolstering Market
By David Stringer
Rio Tinto Group cut its full-year guidance for iron ore shipments as second-quarter output rose less than estimated after severe weather in Australia, providing potential support for the battered market.
The world’s second-largest exporter forecast shipments of 340 million metric tons in 2015, down from its previous estimate of 350 million tons, Rio said in a statement Thursday. Rio shipped a total of 302.6 million tons in 2014, it said in January.
The cut follows the announcement this week by Vale SA, the largest exporter, of plans to cut about 25 million metric tons of higher-cost supply from this month, while seeking to still meet its full-year output target.
“This will be seen as a slight positive, and we know that Vale is doing something similar,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said by phone. “It means that the supply glut that we continue to see will be moderated organically, rather than those tons being forced onto the market.”
Rio rose 0.5 percent to $53.36 at 10:08 a.m. in Sydney trading, trimming its decline this year to 8 percent.
Iron ore fell this month to the lowest since May 2009 as the biggest suppliers, including Rio and Vale, continue to flood the market even as demand weakens in China, the biggest buyer.
Prices jumped 5.9 percent on April 22, at the time the most since 2012, after BHP Billiton Ltd. slowed the pace of its expansions by halting a planned $600 million port upgrade project.
Rio’s total output expanded to 79.7 million metric tons in the three months to June 30, from 73.1 million tons a year earlier. That compared with the 81.9 million ton median estimate of six analysts surveyed by Bloomberg.
About 7 million tons of shipping capacity was lost in the first half as a result of poor weather in Australia’s Pilbara region, including the impact of Tropical Cyclones Olwyn and Quang, London-based Rio said. Heavy inland rains reduced truck utilization, crimping production rates and lowering the amount of tons railed to ports, it said in the statement.
Ore of 62 percent delivered to Qingdao fell to $44.59 a dry ton on July 8, the lowest since at least May 2009, and was at $50.55 on Wednesday, according to Metal Bulletin Ltd. Compared with the annual benchmarks that preceded recent spot trading, the July 8 price would be the lowest since 2005, data compiled by Clarkson Plc show.
The largest exporters are expanding output in an effort to reduce costs per ton and use the higher volumes to offset price declines.
Iron ore will remain in oversupply this year, though producers are likely to show a more visible supply response in 2016, Caroline Bain, senior commodities economist at Capital Economics Ltd., wrote in a July 13 note.
Copper mine output fell 19 percent to 134,000 tons in the quarter, from 164,800 tons a year earlier, Rio said in its statement. That was in line with the 135,000 ton-median estimate of seven analysts surveyed by Bloomberg.
Production at Escondida, the world’s largest copper mine, is expected to impacted this half by a decline in grades and reduced water availability, Rio said.
Metallurgical coal output rose 15 percent to 2.1 million tons compared with a year earlier, beating a 1.9 million ton median estimate among five analysts.