Rio Tinto Poised to Meet Iron Ore Shipment Guidance for 2020

Summary

• Iron ore has been among the top-performing commodities of the year with the commodity delivering ~ 40 per cent YTD returns.
• In the recent past, Iron Ore Futures has again clinched a new 52-week high of RMB 845.00 per dry metric tonne on the Dalian Commodity Exchange.
• Every uptick in iron ore prices is now prompting ASX-listed iron ore miners to gear up and lock-in high prices.
• After FMG, now Rio Tinto is capturing the market’s attention, post announcing its Q2 2020 performance.
• Rio looks poised to meet its 2020 shipment guidance of 324 to 334 million tonnes of iron ore with first-half shipment reaching 159.6 million tonnes, 3 per cent up against the previous corresponding period.

Iron ore prices are continuously booming with prices of Iron Ore Futures on the Dalian Commodity Exchange reaching a new 52-week high of RMB 845.00 per dry metric tonne on 14 July 2020. The rally in iron ore prices is mainly supported by the demand from China, which is aiming to capture a large piece of the global steel industry.

Also Read: Iron Ore Inks A New 52-week High; ASX-listed Iron Ore Stocks Rallying, FMG at a New Record High

• Economic condition of China has improved through the second quarter of the year 2020 and now appears to be stabilising.
• Construction and infrastructure sectors are performing well, while the stock market and house prices are also improving, lending support to consumer confidence.
• Furthermore, the automotive sector of China is showing initial signs of recovery from a very low base, which, in turn, is also supporting the demand for base metals.

To Know More, Do Read: China- The Catalyst to Gold and Iron Ore Rally

ASX-listed iron ore stocks are strongly betting on the reviving economy of red dragons, as China remains the largest Australian iron ore consumer, thanks to its thriving steel industry, which looks well poised to capture a large tranche of the global steel industry in the wake of cooling smelter across North America and Europe and spurring domestic steel output.

While the demand for iron ore remains high across China, ASX-listed iron ore mining companies such as Fortescue Metals Group Limited (ASX:FMG) and Rio Tinto Limited (ASX:RIO) are pulling efforts and performance to deliver and lock-in high prices.

While FMG has already shipped 130.9 million tonnes of iron ore for the year-to-date period to March 2020 and has upgraded its shipment guidance to 175 - 177 million tonnes for FY2020, Rio Tinto is also gearing up and seems to be well on track to deliver upon its shipment guidance of 324 to 334 million tonnes for 2020.

To Know More, Do Read: Large Cap Blue Chip Iron Ore Company Basking under Mega Iron Ore Rally

Rio Tinto Q2 Operational Updates

• Rio produced 83.2 million tonnes of iron ore during the second quarter, which remained up by 4 per cent against the previous corresponding period and 7 per cent up against the previous quarter, respectively.
• Post the completion of Q2, total iron ore production for the first half of 2020 has now reached 161.1 million tonnes, which remains 3 per cent up against the previous corresponding period (or pcp).
• Rio shipped 86.7 million tonnes of iron ore during the period, up by a unit per cent against pcp and 19 per cent against the previous quarter.
• Combined shipment for the first half has now reached 159.6 million tonnes, 3 per cent up against pcp.

While the iron ore production and shipment both increased strongly against pcp and the previous quarter, the average realised price on the sales also rose considerably during the same period.

• Rio realised an average price of $79.6 per wet metric tonne on a Free-on-Board (or FOB) basis during the second quarter, which remained ~ 2.97 per cent up against the previous quarter.
• However, on a half-year basis, the average realised price remained unchanged against pcp to stand at $78.5 per wet metric tonne (FOB).

Iron Ore Exploration, Projects, and Trade Updates

• The Company continued increasing the volumes of its port sales in China with 2.5 million tonnes of sales during 1H 2020 and 1.7 million tonnes in Q2 2020, including product from Iron Ore Company of Canada (or IOC) and Pilbara operations.
• The Company charged a pre-tax and pre-divestment expenditure on exploration and evaluation of $280 million on the face of the income statement for the first half, which remained slightly down against pcp.

Second-Top Performing Segment

• Apart from iron ore, the Company witnessed a strong quarter from its bauxite segment as well with the production of 14.6 million tonnes during the quarter, up by 9 per cent against pcp and 5 per cent against the previous quarter.
• Bauxite production for the first half remained 8 per cent higher against pcp at 28.4 million tonnes.
• The Company shipped 10.7 million tonnes of bauxite to third parties in the second quarter, up by 13 per cent against pcp.

Heritage Update

Rio recently came under the community backlash for blasting indigenous sites while exploring for iron ore in the Pilbara region. The Company blasted the Juukan Gorge 1 and 2 – Aboriginal rock shelters, which over the years have developed deep historical and cultural significance across the continent.

However, post these events, Rio announced a board-led review of its heritage management, which the Company expects to get complete by October 2020.

To Know More, Do Read: Rio Tinto Under Community Backlash After Blasting Indigenous Site

The stock of the Company last traded at $104.140 on 17 July 2020, up by 0.609 per cent against its previous close on ASX.

(Note: All currency in AUD unless specified otherwise)