Iron ore prices are again tumbling in China as ASX mining companies restore production and bring back the supply to normalcy. ASX-listed giant iron ore suppliers to China such as Rio Tinto (ASX: RIO) and BHP Group Limited (ASX: BHP) are restoring production after the supply chain took a hit from bad weather conditions in Pilbara.
The September 2019 quarter has been a roller coaster ride for Australian mining companies as the ASX mining stocks indulged themselves in the maintenance activities of their respective operations, which were disrupted amid the impact of the Tropical Cyclone Veronica on the operational sites.
Iron Ore Peaks and Troughs
Iron ore futures prices initiated a rally from the level of RMB 448.00 (low in December 2019) over the disruption in the supply chain caused by the suspension of Vale’s operational activities in Brazil and impact of the Tropical Cyclone Veronica and Wallace over the operations of the Australian miners in the Pilbara region.
DCIOF0 and DCIOC1 Daily Chart (Source: Thomson Reuters)
Over the supply disruption and high steel demand during the first quarter of the year 2019, the iron ore futures prices surged to multi-years in China and reached RMB 924.50 (high in July 2019).
To Know More About the Background, Do Read: After Rio, Veronica Now Hits BHP; Company Estimates 6 To 8 Million Tonnes Production Loss
Post-July 2019, the iron ore prices faced multiple pressure from the global events and economic scenario and plunged. From the re-entry of Vale into the supply chain to the news of ramping up production, etc., all cemented to lid the gains in iron ore.
After that, the big blown to the iron ore prices came with the announcement from the China Iron ore and Steel Association, which started to adopt stringent measures to curb down the iron ore prices since it hit the profit margins of the steel mills in China.
To Know More, Do Read: CISA Crack Down on Iron Ore Prices kept RIO and BHP Under Duress
Apart from the aforementioned reasons, the U.S-China trade war also played a crucial part in the iron ore price plunge as it reduced the steel consumption and production in China amid a fall in industrial and construction output.
Iron Ore Supply Normalcy
Australian iron ore miners delivered more iron ore in September 2019 quarter amid improved weather conditions and restored damaged operational assets. The high tides at Port Hedland, used as a delivery port by the Pilbara-based miners, became normal during the September 2019 quarter along with improved production, which increased the Australian iron ore supply to China.
The Brazilian Mammoth- Vale also resumed operations and notified the market over the production guidance and ramp-up plans. The ban, which caused a production loss of 90 million tonnes per year is anticipated by the market participants to reach the average production level of 400 million tonnes per annum over the coming one to two years.
Rio Tinto (ASX: RIO)
ASX mining stock Rio’s, Pilbara iron ore shipment for the quarter ended 30 September 2019 stood at 86.1 million tonnes, which was 1 per cent higher against the previous quarter and 5 per cent higher against previous corresponding quarter in 2018.
The overall production at Pilbara surged by 10 per cent against the previous corresponding quarter to stand at 87.3 million tonnes. The production of 87.3 million tonnes also witnessed a surge of 6 per cent from the previous corresponding quarter in 2018.
However, over the last nine months, Pilbara’s iron ore production stood at 243.1 million tonnes, which was 3 per cent down from the same period in 2018. Likewise, the Pilbara iron ore shipments over the nine months period stood at 240.6 million tonnes, which in turn, witnessed a drop of 4 per cent against the same period in 2018.
The production across the product line in the Pilbara region stood as below:
Rio kept the full-year production guidance in the range of 320 to 330 million tonnes (on a 100 per cent basis), unchanged against the previous guidance and the iron ore unit cost guidance for 2019 remained $14 -$15/ tonne.
Despite slightly high quarterly production, the Australia production chain is yet to be fully restored; however, the production is anticipated by the industry experts to get fully restored till the end of the year supported by the ramping of maintenance activities.
The share of the company closed the session at $87.22 (as on 17 October 2019), down by 2.884 per cent against its previous close on ASX.
BHP Group Limited (ASX: BHP)
BHP’s Western Australia iron ore production stood at 61 million tonnes in September 2019 quarter down by 1 per cent as compared to the previous corresponding quarter in 2018 and declined by 3 per cent against the previous quarter.
However, the lower volume of the WA iron ore reflected substantial planned maintenance at Port Hedland undertaken by the company.
The planned maintenance included a major car dumper maintenance program, which was crucial for the improvement in the port reliability and to provide a stable base for BHP’s supply chain; the company completed the major planned car dumper maintenance on 16 October 2019; however, the port maintenance program would continue through FY2020.
The South Flank iron ore project of the company is half-completed, and all the major projects of BHP are on schedule and budget.
BHP kept the full-year production guidance in the range of 273 to 286 million tonnes, unchanged against the previous guidance (on a 100 per cent basis).
The share of the company closed the session at $34.86 (as on 17 October 2019), down by 3.274 per cent against its previous close on ASX.
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