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Iron Ore Production Weakness Not Seen Dampening Supply

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Rio Tinto’s production

Rio Tinto’s (RIO) production for 1H16 rose by 11% year-over-year (or YoY) to 136.3 million tons. Production for 2Q16 was 68.9 million tons, or 8% higher YoY.

The run rate of Pilbara—Rio’s main iron ore asset—sales for 2Q16 was 330 million tons. Rio is almost on track to hit its annual guidance of 330 million tons.

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Majors’ production slightly weak

BHP Billiton’s (BHP) iron ore production for its fiscal 2016 ended on June 30, 2016, was 227 million tons. This was slightly lower than BHP’s guidance of 230 million tons. The strong production at Western Australian Iron Ore (or WAIO) was somewhat offset by the suspension of operations at Samarco in November 2015. BHP has, however, guided for WAIO production of between 265 million–275 million tons on a 100% basis for fiscal 2017.

Vale SA (VALE) also saw a slight fall in its iron ore production for the quarter ended June 30, 2016. Its production in 2Q16 was 2.8% lower YoY. The company’s production, however, increased by 12% sequentially.

Anglo American (AAUKY) also reported a slight setback in its iron ore production. Fortescue Metals Group (FSUGY), on the other hand, reported production of 169.4 million tons, which was above its guidance of 165 million tons.

Supply additions

While some mining companies reported slight misses in iron ore production figures, this reduced production was nowhere near able to make a positive impact on the supply-side equation, thereby acting as a catalyst for higher prices. Guidances remain intact, in-line with miners’ strategies of increasing their market shares.

The SPDR S&P Global Natural Resources ETF (GNR) tracks the natural resources index. BHP forms 5.0% of its holdings. The SPDR S&P Metals and Mining ETF (XME) also provides exposure to the metals space.

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