Rio Tinto (RIO) Q2 Iron Ore Shipments & Production Down Y/Y

Rio Tinto plc’s (RIO) iron ore shipments in the second quarter of 2021 declined 12% year over year to 76.3 million tons (Mt) as storms affected its West Australian operations. This takes total iron ore shipped by the company to 154.1 Mt for the first half of 2021, which reflects a 3% drop year over year. Iron production in the first half of 2021 came in 5% lower than the prior year, due to weather and labor constraints. Both shipments and production reported by the company in the first half of 2021 marks its weakest performance since 2015.

Iron ore production in the second quarter was down 9% year over year to 75.9 Mt. The company stated that the shortfall was due to above average rainfall in the West Pilbara, shutdowns to enable replacement mines to be tied in, processing plant availability and cultural heritage management. In the first quarter, the company’s iron production dipped 2% to 76.4 Mt on account of above average wet weather in the mines through February, and fixed plant reliability and labor resource availability. Ongoing travel restrictions due to COVID-19 and a tight labor market in Western Australia have been impacting the company’s ability to access experienced contractors and particular skill sets. Overall, in the first half of 2021, the company has produced 152.3 Mt of iron ore, which is 5% lower than the prior year comparable period.

Rio Tinto raised its iron ore production cost guidance for 2021 citing higher input costs (diesel and labor), costs related to mine heritage management as well as COVID-19 related expenses. The company has so far incurred around $100 million of COVID-19 related costs.

Due to this underperformance, Rio Tinto now expects to ship near the lower end of its range of its previous guidance of 325 Mt to 340 Mt in 2021. The company stated that the guidance remains subject to weather conditions, tie-in and ramp up of brownfield replacement mines, and ongoing cultural heritage management. The labor constraints also persist and will continue to impact operations. Brazilian miner Vale S.A VALE had reported a 14.2% year-over-year increase in its first quarter 2021 iron ore production to 68 Mt courtesy of the company’s ongoing operational stabilization and resumption plan. It is set to release its second-quarter production report on Jul 19, 2021. The company’s iron ore production guidance for 2021 is in the range of 315 Mt to 335 Mt. Meanwhile, BHP Group BHP anticipates producing between 245 Mt and 255 Mt of iron ore in fiscal 2021.

These companies will benefit from higher iron ore prices this year. Iron ore prices have gained around 40% so far this year and are currently trending above $220 per ton. Prices had hit a record high of $232 on May 12 on declining stockpiles and concerns over supply. Meanwhile, iron ore demand from China is benefiting from rise in infrastructure spending and renewed vigor in manufacturing activity. Despite the China government’s efforts to curb steel output to reduce carbon emissions, demand for iron ore showed resilience as mills that were not subject to output curbs continued to ramp up production. Healthy profit margins buoyed by higher demand and a rally in steel prices have led to a rise in production.

The World Steel Association projects steel demand to grow 5.8% in 2021 and reach 1,874 Mt. China's steel demand is expected to improve 3% this year. Further, the ongoing recovery in automotive and constructions sectors across the world will drive demand for steel and thereby for iron ore. In the United States, massive government spending to rebuild infrastructure including railroads, highways and bridges will significantly boost steel demand, thus fueling the requirement of more iron ore.

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In the past year, shares of Rio Tinto have gained 38.8%, compared with the industry’s rally of 31.2%.

Rio Tinto currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Another top-ranked stock in the basic materials space is Nucor Corporation NUE which flaunts a Zacks Rank #1.

Nucor has a projected earnings growth rate of 259.9% for the current year. The company’s shares have soared around 131% over the past year.

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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