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Rio Tinto Group, the world’s top iron ore producer, reported a drop in shipments in the year’s first quarter on delays to expansion projects, but signaled volumes should rise in the second half.
Total shipments from its iron ore operations in Western Australia’s Pilbara region were 71.5 million tons in the three months ended March 31, the company said in a statement on Wednesday, down 15% on the previous quarter and 8% lower from the year-before period. That compares with a median forecast of 73.1 million tons from five analysts.
The results come even as Rio is among commodity giants which have had a stellar year of profits, driven by soaring prices. Raw materials could rally further should investors boost their allocation at a time of rising inflation, according to JPMorgan Chase & Co. Iron ore futures in Singapore surged 32% in the first quarter amid rising demand expectations despite China’s campaign to tame prices.
“Production in the first quarter was challenging as expected, re-emphasizing a need to lift our operational performance,” Jakob Stausholm, Rio’s chief executive officer, said in a statement. As the company starts to ramp up its Gudai-Darri project in Western Australia, “our iron ore business will have greater production capacity and be better placed to produce additional tons of Pilbara Blend in the second half,” he said.
Depletion of existing mines was not offset by replacement projects because of delays in commissioning, while labor issues caused by pandemic constraints also contributed to the challenges at Pilbara operations, the company said.
Rio isn’t the only iron ore giant to announce first-quarter production that missed estimates. Vale SA identified weather disruptions as a key reason for delivering output that was down from both the previous quarter and the year-ago period. The Brazilian company churned out 63.9 million metric tons in the first three months of the year, missing the 67.8 million-ton average estimate among nine analysts tracked by Bloomberg,
Maintaining Forecasts
Rio maintained its forecasts for iron ore exports of 320 million to 335 million tons in 2022, after shipping 322 million tons last year. The consumption outlook is clouded with concerns over economic growth as China grapples with a resurgence of Covid-19. Meanwhile, the industry also faces risks of further government intervention amid mounting inflation pressure.
“Recent input cost increases are the largest raw material cost hike since the Oil Crisis in 1973,” London-based Rio said in its statement.
Last month, Rio joined the ranks of multinationals shunning Russia following the country’s invasion of Ukraine, saying it was in the process of terminating all commercial relationships it has with any Russian business.
Other highlights from the production report include:
Mined copper production was down 5% on the prior quarter at 125,500 tons, but up 4% from a year ago
The company said market expectations have been revised downwards amid sustained high inflation, the outbreak of the Russia-Ukraine war, and a resurgence of Covid-19 lockdowns in China
“Further downside risks include a prolonged war and other geopolitical tensions, extended labor and supply shortages, and monetary policy adjustments to curb inflation,” according to the statement
The company expects first sustainable production from the Oyu Tolgoi project in the first half of 2023. In January, Rio announced a deal with Turquoise Hill Resources Ltd. and the government of Mongolia to move the project forward. This was followed by an offer in March to buy out Turquoise Hill Resources Ltd. for $2.7 billion in attempt to gain more control of the giant copper mine
Rio’s Sydney-traded shares have climbed 22% in 2022, compared with a 28% advance for top rival BHP Group. Rio’s production report was published before trading began in Australia.
(Updates with more details from statement from fifth paragraph)
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