Why Rio Tinto Doesn’t Believe in the Iron Ore Price Rally



Rio joins bearish iron ore chorus

As we saw in our previous article, Wall Street analysts expect iron ore to fall again as supply-demand fundamentals catch up with its price. Rio Tinto (RIO), an iron ore giant, also shares this view.

Rio Tinto’s CEO Sam Walsh warned earlier in April 2016 that iron ore prices could fall in the second half of 2016 on the back of a demand-supply imbalance. Bloomberg quoted Walsh as saying, “I’ve said all along that we expect the iron ore prices will be volatile. That’s what we’re seeing.”

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BHP is also bearish on iron ore prices

Earlier, BHP’s CEO also shared his pessimism over the longevity of the iron ore price rally. He said, “We are relatively bearish about the iron ore price, probably more bearish about the iron ore price than the price of any other commodity that is currently part of the BHP Billiton portfolio.”

Other commodities in BHP’s portfolio include copper, aluminum, and petroleum. The CEO added, “Ultimately, that excess of supply will drive prices lower than where they are currently.”

Anglo American (AAUKY) has a similar view. The company’s CEO mentioned that iron ore is in a depressed state and will continue to remain so for an indefinite period. With this view, the company is looking to dispose of or spin off its iron ore assets and keep only its core assets such as diamond, copper, and platinum group metals.

Other iron ore producers such as Vale (VALE) and Cliffs Natural Resources (CLF) are struggling to weather this weakness in iron ore prices. CLF forms 3.5% of the SPDR S&P Metals and Mining ETF (XME).

Why is Hancock Prospecting bullish on iron ore?

In contrast with most market participants, Gina Rinehart’s Hancock Prospecting expects iron ore prices to stabilize at current levels, supported by robust demand from China.

Hancock Prospecting’s executive director said, “We are hopeful it will stay around the $US55 to $US60 a tonne range for the rest of the year.” Hancock’s $10 billion Roy Hill project started supplying iron ore in the seaborne market in December 2015. It’s currently ramping up to the full capacity of 55 million tons per annum.


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