Rio Tinto reduces its iron ore output as world glut rises
RIO TINTO Group’s cut to its iron ore export forecast for this year is unlikely to make anyone bullish soon.
The second-largest exporter reduced its 2015 estimate by about 10 million tons. That compares with a surplus Morgan Stanley estimates will rise to 83.2 million tons in 2020 from a forecast 58.1 million tons this year as the seaborne market hits 1.4 billion tons.
Prices fell last week to an at least six-year low, according to data going back to May 2009.
The global glut is swelling and benchmark prices are mired in a bear market as Rio and its main rivals – Vale and BHP Billiton – raise low-cost production even as demand stagnates in China, the biggest buyer.
Vale said this week it was seeking to meet its full-year output target of 340 million tons, even while trimming about 25 million tons of higher-cost supply.
“It doesn’t seem to me that there’s going to be much impact at all from this cut” by Rio, Ric Spooner, a chief analyst at CMC Markets, said in Sydney. “Overall, it’s only a small reduction in volumes for the year.”
Rio estimates shipments of 340 million tons in 2015, down from its previous estimate of 350 million tons, it said yesterday. That compares to cargoes of 302.6 million tons shipped in 2014.
Iron ore futures on the Dalian Commodity Exchange closed 0.4 percent lower at 366.5 yuan (R740) a ton yesterday. Rio rose 0.4 percent to 2 606.50p in London trading, trimming its decline this year to 13 percent.
Tropical cyclones
The cut to Rio’s shipping target followed severe weather in Australia’s Pilbara region that briefly shuttered Dampier port. About 7 million tons of shipping capacity was lost in the first half on the impact of tropical cyclones Olwyn and Quang, Rio said.
Heavy inland rains reduced truck utilisation, crimping production rates and lowering the amount of tons railed to ports, it said.
The disruption won’t tighten the iron ore market this half and Rio could even exceed its revised target, Morgan Stanley analysts led by Brendan Fitzpatrick said in a note to clients yesterday.
Rio’s total output expanded to 79.7 million 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. – Bloomberg