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Will Miners’ Production Records Pressure Iron Ore Prices?

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Iron ore production growth

Recently, iron ore miners (XME), including BHP (BHP), Rio Tinto (RIO), and Vale SA (VALE), released their operational reviews for the quarter that ended in June.

Iron ore (PICK) volumes are key to these companies’ revenues and earnings because it’s the biggest commodity they produce.

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Miners’ production better than expected

BHP’s iron ore production for fiscal 2018 (the year that ended on June 30) hit a record, coming in at 275.1 million tons—higher than its guidance of 272 million–274 million tons. In the June quarter, volumes came in at 72 million tons, 3% higher YoY (year-over-year), which was also higher than expectations. Improved productivity led to higher volumes for the miner. BHP has guided for 273 million–283 million tons of iron ore production in fiscal 2019.

Rio Tinto reported an increase of 14% YoY in iron ore shipments to 88.5 million tons in the second quarter. The company’s quarterly volumes benefited from better weather and improved productivity across the system. It said that it expects its production to come in at the higher end of its guidance range for 2018. Rio has guided for 330 million–340 million tons of iron ore volumes for the full year.

Vale’s iron ore volumes for the second quarter came in at 96.8 million tons—a record for the second quarter.

Cleveland-Cliffs (CLF), which is primarily a US-focused iron ore pellet producer, announced that it was exiting the volatile seaborne iron ore business by selling its Australian operations to Mineral Resources. It’s slated to announce its second-quarter results before the market opens on July 20.

Impact on prices

As we highlighted in What the New Wave of Mine Approvals Means for Iron Ore Prices, new projects are coming up for these miners, and these projects will mostly replace the maturing production at their mines. However, as supply remains plentiful and China’s growth falters, iron ore could be in for a rough ride.

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