Rio Second-Quarter Iron Ore Output Rises 7% as Prices Gain

  • World’s biggest exporters benefiting from rally in 2016
  • Decision on Silvergrass project expected in the second half

Rio Tinto Group’s second-quarter iron ore production rose a weaker-than-expected 7 percent as the No. 2 shipper continues to boost the world’s lowest-cost supply amid a rebound in prices.

Total output rose to 85.3 million metric tons in the three months to June 30, London-based Rio said Tuesday in a statement. That compared with 79.7 million tons a year earlier and missed the 88 million ton median estimate of seven analysts surveyed by Bloomberg.

The world’s largest iron ore producers, including Rio and BHP Billiton Ltd., are benefiting as prices rallied about 31 percent in 2016 to feed steel output in China, bolstering profits after last year’s commodities rout. Rio advanced 0.5 percent to A$50.37 at 10:26 a.m. in Sydney trading, extending its advance this year to 13 percent. BHP declined 0.7 percent.

“The positive is that Rio shipped more than they’ve produced in a market in which the price has gone up,” Peter O’Connor, a Sydney-based analyst with Shaw and Partners Ltd., said by phone. Total shipments in the quarter were 86.8 million tons, according to the statement.

Ore with 62 percent content delivered to Qingdao fell 2.7 percent to $56.86 a dry metric ton on Monday, according to Metal Bulletin Ltd. data. The material touched $70.46 a ton on April 21, the highest since January 2015. Iron ore may drop to $40 a ton in the fourth quarter, according to Goldman Sachs Group Inc., while Morgan Stanley’s outlook for the same period is $35.

Production and shipments from Rio’s Western Australia iron ore mines were “slightly weaker than expected” while copper output was also below expectations, JPMorgan Securities Australia Ltd. analysts including Lyndon Fagan wrote in a note to clients.

An investment decision on Rio’s Silvergrass project, which may add about 20 million tons of iron ore mine and plant capacity in Australia to replace depleting assets, is expected this half.

Rio forecast full-year shipments from its Western Australia mines in 2016 of 330 million tons -- that’s 4 percent higher than the 318.5 million tons in 2015. Production in the region is forecast to decline in 2017 amid delays to a planned autonomous railway system. Production from its Canadian iron ore operations fell in the quarter.

Mined copper output of 141,000 tons was flat on the previous quarter, as stronger performance at Kennecott and Oyu Tolgoi offset declining production at Escondida, Rio said in the statement. The total compares to a 153,300 ton estimate among seven analysts.

Rio’s decision to repurchase $3 billion of bonds last month following a total of $1.5 billion of buybacks earlier this year will trim first-half earnings by about $125 million as a result of early redemption costs, the producer said in its statement.

Before it's here, it's on the Bloomberg Terminal.