Iron Ore Shipments From Top Australia Miners Settle Down -- Update

By Rhiannon Hoyle

SYDNEY--Iron-ore shipments from Australia's top producers have settled in recent months after years of spirited growth, buttressing market prices previously battered by fears of oversupply.

Miners including Rio Tinto PLC and BHP Billiton Ltd. poured billions of dollars into massive expansions of their Australian mining operations as China's economy grew at breakneck speed, demanding greater volumes of the steelmaking ingredient for skyscrapers, bridges and other infrastructure.

Now, their shipments of the commodity are showing signs of stabilizing as the miners complete those mega-expansions and turn their focus to investment in other commodities, such as copper, bauxite and oil. Steadying supplies are helping to support the price of iron ore, which has climbed 35% since the start of the year following a decade low.

On Thursday, Rio Tinto, the world's No. 2 iron-ore exporter, said it shipped 80.9 million metric tons of iron ore from its Australian mines in the three months through September, down 2% from the previous quarter. It said it could ship slightly less ore than anticipated in 2016, changing its projection to 325 million-330 million tons from roughly 330 million tons earlier.

Separately, Fortescue Metals Group Ltd. said its exports for the same quarter were up just 1% on-quarter at 43.8 million tons.

A day earlier, BHP Billiton also reported a small 1% lift in quarterly sales, to 65.4 million tons.

BHP is the world's third-biggest exporter of iron ore, while Fortescue is the fourth largest. Brazil's Vale SA is the No. 1 supplier.

Shipments from Australia's top miners had been on a steady upward run. Between 2009 and 2015, Rio Tinto's shipments increased by more than 50%.

Now, three in every five tons traded globally by sea come from the country's remote Pilbara region, where Rio Tinto, BHP and Fortescue run their operations.

"They have reached a position where they are comfortable, without having to spend more dough," said James Wilson, a Perth-based analyst at Argonaut Securities.

At the same time, China's own output of iron ore is slowing, sparking greater demand for foreign ore and keeping prices underpinned. As the world's top steel producer, China is the world's biggest consumer of iron ore.

Chinese imports of iron ore increased 8% in September, continuing a rising trend as local output slackens because of high costs and an antipollution clampdown.

Prices for coking coal, also used in steelmaking, have tripled this year mainly because of restrictions on China's own production. "It just shows you how quickly a price cycle can turn around," said Mr. Wilson.

Iron ore's rise has been notably lesser, but is still providing relief to producers.

"The rally in the spot iron-ore price since the low base set in December 2015 coupled with cost cutting among some of the producers, has given the market some respite," Citigroup analysts said in an Oct. 16 note. The price fell as low as US$37 a ton in mid-December, the cheapest in a decade. It now trades around US$58 a ton.

"The market continues to debate whether this relief is temporary or more permanent in nature," they said.

Some fear another wave of supply to come, as Vale ramps up a massive new mine known as S11D in the Brazilian Amazon, while in Australia, exports rise because of the new Roy Hill mine built by businesswoman Gina Rinehart.

Citi forecasts another retreat in prices to an average of US$45 a ton next year.

But Fortescue Chief Executive Nev Power said he doesn't expect those new projects to weigh on prices.

"I think the market has well and truly priced [in] Roy Hill and S11D tons coming into the market," Mr. Power said. Although, "if we see any undershoot in supply, we would expect to see the price respond to that," he added.

Mr. Power said demand for iron ore remained robust in China because of a hot property market and investment in infrastructure projects. Investment in property development grew roughly 6% in the January-to-September period, while investment in rail, road and other infrastructure projects climbed 19%, official data show.

Still, he cautioned, especially with projects like S11D ramping up, there was plenty of supply to meet China's needs.

"We are confident that the market right now doesn't need any more tons," said Mr. Power. He didn't rule out small increases in Fortescue's output in the months ahead, but said any rise would only come from more efficient mining methods.

Rio Tinto and BHP Billiton have also said they may lift output slightly by working existing mines harder.

"With a continued focus on value, we will seek further productivity improvements across the business," Rio Tinto Chief Executive Jean-Sébastien Jacques said on Thursday.

Write to Rhiannon Hoyle at [e-mail]

(END) Dow Jones Newswires

October 20, 2016 02:33 ET (06:33 GMT)

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