Rio Tinto Share Discussion Threads

[yoyo2money] 22/2/2017 12:17

It will be interesting to see where the price will be in a few days... I think loads will dump

[robrah] 22/2/2017 12:06

Thanks yo yo If this goes ex divi tomorrow. Wonder why it is tanking today ??

[yoyo2money] 22/2/2017 11:54

Dividend price: 125.00 ¢
Dividend- Ex-date: 23-Feb-17

[robrah] 22/2/2017 11:47

Has rio gone ex div yet ??

[ian davenport] 21/2/2017 15:19

Idioterna - you need to replace hxxps with https in the web address - shame to see BLT didn't manage to hang on to those gains this morning

arja - sorry to go off topic Rio wise, but I am have to say I have never come across another UK based ( not sure if you are a Brit or not) financial follower who thought we should have joined the Euro = I was trading the component currencies before it was launched and so did a lot of work on how it would work ( or not , as now seen)
if Gordon had allowed it , we would have gone through the boom days of 2001-8 with interest rate half of what we had, a weaker currency in world terms, and the economy would have exploded - think Ireland/Iceland on steroids. come the crash , there would have been a lot further to fall , and we couldn't have devalued our currency in the way that say Iceland did ( or in effect we did) , we'd probably be coming out of it by now, but the first 5 years would have been grim as hell.
on the flip side, in that case we wouldn't have been the job creating power-house of Europe ( I recall a story , "more jobs created in Yorkshire than the rest of the EU" a while back) so we wouldn't have so much immigration , UKIP would never have risen, we would never have had a referendum , and going forward would be happily in the single market , rolling along with the rest of Europe growth wise, maybe like Spean is

[idioterna] 21/2/2017 06:17

..couldn't open the post Ian. I've been a BLT buff for a while but the move towards oil production and continued focus on coal worried me. Once they cut the dividend I got out. It's been RIO ever since. Steering clear of oil and coal was an excellent move (with hindsight), but maintaining the dividend made the move all the better. I'm targeting $90 before the top of this cycle (2020) and the dividend will sustain me until then.

[arja] 20/2/2017 22:18

the UK would have been better off adopting the euro and the chart shows that clearly . As Carson would have saod " not a lot of people know that " !

[malcolmmm] 19/2/2017 22:59

An Australians views-

Clearly Germany has been the huge winner from the Eurozone in terms of trade. France, despite having a similar population, trails far behind while Italy is the biggest loser. With Italy and Spain bearing the brunt of the recession (with 20% unemployment) it is hard to see how a political backlash against the European Government is going to be avoided. I believe that the euro will itself show signs of unravelling by the end of the year, although nations such as Germany can be expected to fight hard to maintain the status quo

[arja] 18/2/2017 22:33

garfield8 - dream on. It will be a disaster for the UK but will not become apparent for a few years . THe oldies who voted brexit are selfish sods in the main and do not give a hoot about the younger generation

[ian davenport] 17/2/2017 14:13

interesting article that goes someway towards answering the question that's sometimes raised as to the differences between Rio and BHP
I'm a HL customer , so if you can't access this, please let me know and ill see if I can save it in a different format

hxxps://www.hl.co.uk/news/articles/rio-vs.-bhp-what-sets-these-two-giants-apart

[christh] 17/2/2017 13:56

Rio Tinto uptrend looks set to continue, says Zak Mir
The Rio Tinto PLC (LON:RIO) share price is set to continue its recent momentum and could close in on the £40 mark, according to technical analyst Zak Mir.

“The big turnaround came around the end of June last year with the break through the 200-day moving average and then the higher low for September underpinning the uptrend,” Mir explains in the latest Proactive Investors Tip TV Bulletin Board segment.
“We’re in a rising trend channel which we can draw from June. The top of the channel is probably heading as high as £38 or £39 and that’s the target for the next two to three months.”

video clip on youtube

[christh] 17/2/2017 13:52

Sorry Ian, it had to be said.
Very important points and significant reasons to justify iron ore
and commodities future.
Apologies for its length but hopefully someone will take the time to read it
and digest it.

Rio will move higher to £40-£45 as the price of iron ore moves towards $100 per tonne.

So keep an eye on the iron ore movement and China demand.

[ian davenport] 17/2/2017 13:32

arja, sorry I assumed you realised I was being less than serious - didn't you move to Oz largely because of TM?
to be fair, I think she's had a bit of a Gordon Brown moment , wanted to be PM , when it actually falls to her , she's realised its really the one time you don't want to be PM
nice short article on Iron Ore there Chris - can't you just paste the link and the headline?

[christh] 17/2/2017 10:19

We should see a surge of buying to qualify for the dividend which is very good
yield.
It goes x-div on the 23 feb and the div is 100.56p

So those interested in the divi, now is your chance to Buy!

[yoyo2money] 17/2/2017 09:48

Support at 3560 ?

[christh] 17/2/2017 09:32

In the next part of our series, we’ll take a look at steel prices in China.

Part 11
Reading Iron Ore: A Surprise Surge, but What Now? PART 11 OF 14
This Is Boosting Steel Prices in China
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
China’s steel prices

Among the most dominant factors driving the recent iron ore price rally are higher steel production and the rise in steel prices in China (FXI).

Although these factors helped iron ore prices in 2016, the question remains whether steel prices can remain buoyant going forward. The answer lies in the underlying demand trends for steel in China and elsewhere.

This Is Boosting Steel Prices in China
Higher prices

In December 2016, steel prices in China hit 3,557 Chinese yuan per ton—the highest level in two and a half years. While steel prices in China rose almost 60% in 2016, they started falling in the last few days of 2016 due to falling futures.

However, steel prices have stayed buoyant in 2017 YTD (year-to-date). The Chinese futures contracts for steel reinforcing bars, or rebar, have risen 17% in 2017.
Nippon Steel

Japan’s largest steelmaker, Nippon Steel, also expects steel prices in China to remain strong in 2017. The company has stated: “Steel demand and prices in China have been fairly strong on the government’s stimulus.”

Nippon added the following: “My guess is that coking coal prices will stay at $150–$200 a ton as China is said to be trying to cut market volatility.”

In the same vein, Nippon expects iron ore prices to move toward $90 per ton on expectations that China imports will grow.
What’s really driving steel prices?

To make the domestic steel sector more efficient, a significant amount of capacity was cut in 2016. The stimulus provided by the government also helped steel mills to restock their inventories, which acted as a major driver of rising prices. The shortage of another steelmaking raw material, coking coal, also led to higher prices.

While inventory restocking provides temporary relief to steel prices, metals prices (DBC) depend on underlying real demand and supply.
Impact on mining companies

Chinese steel prices and seaborne iron ore prices move in tandem. Many analysts believe that we could see moderation in iron ore prices in 2017. Any fall in steel prices could also put pressure on iron ore prices.

Notably, China’s cutbacks in domestic steel production could result in falling iron ore imports from seaborne suppliers like Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale (VALE), and Cliffs Natural Resources (CLF).

Part 12
Reading Iron Ore: A Surprise Surge, but What Now? PART 12 OF 14
Why China’s Real Estate Outlook Matters to Iron Ore Miners
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
China’s property sector

China’s property sector is critical to seaborne iron ore demand. Investors in iron ore companies such as Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale (VALE), and Cliffs Natural Resources (CLF) should keep an eye on developments in China’s property sector.

Why China’s Real Estate Outlook Matters to Iron Ore Miners
Property growth slowing

According to the National Bureau of Statistics, the real estate sector in China grew 7.7% in 4Q16, as compared to a growth of 8.8% in 3Q16. Property development investment, on the other hand, rose 11.1% in December YoY (year-over-year) as compared to a growth of 5.7% in November. This measures builders’ investments in construction and land development.

China’s home prices have started showing signs of slowing down. China’s property developers have started cutting prices for new apartments in compliance with the government’s orders to eliminate speculation.
Tightening measures and price increases

A slew of tightening measures have been launched across various cities in China to rein in asset bubbles. The country’s property sales have slowed down after these tightening measures came into place.

As reported by scmp.com, “Of the 70 Chinese cities tracked by the statistics bureau, 46 reported price increases in December, compared with 55 in November. Average new home prices in China’s four biggest cities were unchanged in December on month, slowing from a 0.1% increase a month earlier.”
Outlook weaker

Moody’s also expects a slower pace of growth for China’s property sector in 2017 on the back of tighter rules. According to one Moody’s analyst, “We expect nationwide contracted sales in 2017 will be largely flat or will see a slight decline from 2016, after buoyant growth that year.”

Notably, CLF makes up 1.3% of the VanEck Vectors Steel ETF (SLX).

Part 13
Reading Iron Ore: A Surprise Surge, but What Now? PART 13 OF 14
The Future of China’s Auto Sales: Life after Sales Tax Breaks
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
China’s auto sales

China’s automotive industry is the second-largest steel consumer after the real estate sector. In this part of our series on iron ore, we’ll look at recent trends in the Chinese automotive industry. We’ll also analyze how auto sales could shape up in 2017.

The Future of China’s Auto Sales: Life after Sales Tax Breaks
Auto sales fall on tax increase

After rising by 9.1% YoY (year-over-year) in December 2016, auto sales declined by 1.1% YoY in January 2017 to 2.2 million units. Total vehicle sales, including trucks and buses, however, came in 0.2% higher YoY to 2.5 million units.

But investors should note that China’s trade figures for January could be distorted, given the timing of Lunar New Year holiday, which falls at different times.
Total sales

For 2016, China’s (FXI) total sales were 28.0 million units, 13.7% higher than its sales of 24.5 million units in 2015. The growth rate in 2016 was substantially higher than the growth rate in 2015, when auto sales rose 4.7%.

Higher automotive sales in the world’s largest auto market tend to bode well for global steel demand. High auto sales also support seaborne iron ore players such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE). ArcelorMittal (MT) is the leading steel supplier for the automotive sector. AK Steel (AKS) is a major supplier for US automotive companies.
Sales outlook

On September 30, 2015, China announced a 50% cut in its sales tax, from 10% to 5%, on autos with engines smaller than 1.6 liters. Earlier, the tax cut was effective until the end of 2016. However, China’s State Council agreed to extend the cut, albeit at a higher rate of 7.5%.

The extension will be effective until the end of 2017. In 2018, it will revert to 10%. While auto sales could be lower than they were in 2016, people are still expected to take advantage of the lower tax in 2017. January’s sales data could have been distorted so we’ll need the data for a few more months to find out the trend for the sales data.

The SPDR S&P Global Natural Resources ETF (GNR) tracks the Natural Resources Index. Rio Tinto makes up 1.8% of GNR’s portfolio holdings.

In the next and final part of this series, we’ll discuss whether credit-fueled property growth is sustainable in China.

Part 14
Reading Iron Ore: A Surprise Surge, but What Now? PART 14 OF 14
Will Iron Ore Prices Benefit from China’s Credit Growth Prospects?
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
China’s credit metrics and iron ore prices

Financing, or the level of credit available, is crucial to growth, as it stimulates consumption and investment in an economy. By tracking credit growth in China (MCHI), investors can gauge patterns that forecast future demand.

Will Iron Ore Prices Benefit from China’s Credit Growth Prospects?
Record aggregate financing

Aggregate financing measures liquidity by adding the total funds provided by a financial system to nonfinancial sectors and households. China’s aggregate financing stood at ~3.7 trillion Chinese yuan in January 2017, as compared to 1.6 trillion yuan in December 2016.

This is the highest monthly figure. The median forecast called for 3.0 trillion yuan worth of aggregate financing in January.
New yuan loans increase

According to the PBOC (People’s Bank of China), new loans issued by Chinese banks in January 2017 totaled 2.03 trillion Chinese yuan—higher than 1.0 trillion Chinese yuan in December 2016 and the second-highest monthly total on record.
M2 money supply up

The broad money supply rose 11.3% YoY (year-over-year) in January 2017 same as December 2016. The M2 money supply includes cash, checking deposits, savings deposits, money market mutual funds, and other time deposits.

All the credit metrics showed strong growth in January. Investors should, however, note that the credit numbers in China are usually higher in the initial months of the year as the government renews banks’ credit quotas. So we might have to wait for the credit data for a few more months to get a clearer picture of the growth in 2017.
Slowing credit growth?

Credit growth may slow a bit, however, as policymakers resort to tightening measures to contain the asset price bubbles. Goldman Sachs (GS) believes that China’s reliance on credit growth could be a key risk in 2017.

If the Chinese government keeps its policy less supportive in the future, pressure could return to steel mills and seaborne iron ore players. Affected players would include BHP Billiton (BHP) (BBL), Rio Tinto (RIO), Vale (VALE), and the Asia-Pacific division of Cliffs Natural Resources (CLF).

Notably, BHP accounts for 6.3% of the iShares Commodities Select Strategy ETF (COMT).
How Janet Yellen's Statement Affected Precious Metals
How Janet Yellen's Statement Affected Precious Metals PART 1 OF 7
How Mining Stocks Correlate to Gold
By Meera Shawn | Feb 16, 2017 12:10 pm EST
Mining stocks and gold

It’s important to understand which mining stocks have overperformed and underperformed precious metals. Precious metal prices have risen since their ten-month lows in December 2016. As a result, most mining stocks have also increased substantially since then.

Mining companies with high correlations to gold include Sibanye Gold (SBGL), Gold Fields (GFI), Pan American Silver (PAAS), and Coeur Mining (CDE). These companies rose significantly YTD (year-to-date) in 2016, and 2017 started with a price revival.

How Mining Stocks Correlate to Gold
Correlation trends

As you can see in the above table, Sibanye Gold has the closest correlation to gold on a YTD basis among the four miners under review. Coeur Mining is the least correlated with gold, mainly due to its YTD losses.

Coeur Mining, which had the lowest YTD correlation to gold, and Sibanye Gold have seen their correlations to gold rise over the last three years. Sibanye Gold’s correlation rose from a ~0.51 three-year correlation to a ~0.78 YTD correlation. A correlation of ~0.78 suggests that about 78% of the time, Sibanye Gold moved in the same direction as gold in the last year. Usually, a fall in gold leads to falling mining stock prices, and vice versa.

Gold’s relationships to Gold Fields and Pan American haven’t been stable and have seen an upward-downward trend. The mining funds that have a visible correlation to the fluctuations in precious metals include the ProShares Ultra Silver (AGQ) and the VanEck Vectors Gold Miners ETF (GDX).

Part 2
How Janet Yellen's Statement Affected Precious Metals PART 2 OF 7
Analyzing the Volatility of Mining Stocks
By Meera Shawn | Feb 16, 2017 12:10 pm EST
Precious metal funds

Precious metal mining stocks are known to closely track the performances of their respective precious metals. The SPDR S&P Metals and Mining ETF (XME) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) have seen YTD (year-to-date) rises of 14.4% and 32.6%, respectively, as of February 14, 2017. Notably, mining stocks often show more volatility than precious metals themselves.

It’s important to monitor the implied volatilities of large mining stocks as well as their RSI (relative strength index) levels, particularly in the wake of a rebound in precious metal prices. Next, let’s look at Coeur Mining (CDE), Barrick Gold (ABX), AngloGold Ashanti (AU), and Hecla Mining (HL).

Analyzing the Volatility of Mining Stocks
Implied volatility

Call implied volatility takes into account the changes in an asset’s price due to variations in the price of its call option. During times of global and economic turbulence, volatility is higher than in a stagnant economy.

The volatilities of Coeur, Barrick, AngloGold, and Hecla were 61%, 38.7%, 51.3%, and 49.1%, respectively, on February 14, 2017.
RSI levels

The RSI levels for each of these four mining giants rose due to their rising share prices. Coeur, Barrick, AngloGold, and Hecla had RSI levels of 28.4, 68.5, 63.3, and 57.5, respectively.

A 14-day RSI level of more than 70 indicates the possibility of a downward reversion in price, whereas a level below 30 indicates the possibility of an upward reversal.

These technical numbers could be helpful to investors in the precious metal mining industry. Investors often look at the comparative performances of mining shares.

Part 3
How Janet Yellen's Statement Affected Precious Metals PART 3 OF 7
How Miners Have Performed after Yellen’s Comments
By Meera Shawn | Feb 16, 2017 12:10 pm EST
Mining companies have seen gains

Donald Trump’s victory in the 2016 US presidential election initially resulted in fear among precious metal investors. As these concerns subsided, precious metals and mining stocks slowly started falling. The Federal Reserve’s rate hike in December 2016 also pressured precious metals, which joined mining companies in a downward trend.

Some investors expected choppy markets for precious metal mining companies after Trump’s victory, but that didn’t happen. Miners typically follow precious metals, and they usually move in the same direction.

How Miners Have Performed after Yellen’s Comments

On a YTD (year-to-date) basis, Agnico Eagle Mines (AEM), Silver Wheaton (SLW), Franco-Nevada (FNV), and Yamana Gold (AUY) have seen rises in their stock prices. They have risen 17.7%, 15.1%, 13.7%, and 22.1%, respectively. The VanEck Vectors Junior Gold Miners ETF (GDXJ) also saw a YTD gain of 32.5%.
Technical indicators

The above four mining companies are trading above their shorter-term 20-day moving average as well as their 100-day moving average price.

A substantial premium on a stock’s trading price suggests a potential fall in price. A discount could indicate a rise in prices. Target prices for the above four mining companies are significantly higher than their current prices, which suggests a positive outlook.

An RSI (relative strength index) level above 70 indicates that a stock has been overbought and could fall, while an RSI level below 30 indicates that a stock has been oversold and could rise. Mining companies’ RSI readings are also slowly rising.

On February 14, 2017, GDXJ’s RSI level was close to 70. The probable upcoming interest rate hike may negatively impact precious metals as well as precious metal mining companies.

Part 4
How Janet Yellen's Statement Affected Precious Metals PART 4 OF 7
How Will Gold Respond to Rising Equities?
By Meera Shawn | Feb 16, 2017 12:10 pm EST
Equities climbed

In this article, let’s look at the impact of the Fed chair’s speech on the equities market. The hawkishness of Yellen’s statement boosted the US dollar as well as global stocks. The MSCI All-Country Index (ACWV) was trading 0.2% higher at $442.1 on Tuesday, February 14. This is the highest mark it has seen since May 2015. The Chinese, Japanese, South Korean, and Australian indexes were also higher on the same day. The S&P Index (SPY) (SPX) (SPX-Index) has been rising for six straight days.

The overall sentiment in the equity market plays a significant role in the determination of the price of the precious metals. The below chart shows us the relative performance of these two assets.
Gold versus Global EquitiesiSh MSCI ACWMV Shs (ACWV)iShs Gold Trust Trust Units (IAU)Mar '16May '16Jul '16Sep '16Nov '16Jan '17-2%-1%0% + 1%Source: BATS Exchange
Mining shares
The higher the returns from the equity market, the higher the predicted risk appetite and the lower the demand for risk assurance. Gold (IAU), as we know, is a haven asset, and its demand usually rises during uncertain times. If we look back to the 2008 crash, investors started swiftly transferring their money from equities to precious metals. After that, gold reached an all-time high.

If equities start performing better under President Donald Trump, the chances are that haven demand for gold will be negatively impacted.

Though mining companies such as Alamos Gold (AGI), First Majestic Silver (AG), Coeur Mining (CDE), and Pan American Silver (PAAS) are part of the equity market, they may react more strongly to movements in precious metals.
Part 5
How Janet Yellen's Statement Affected Precious Metals PART 5 OF 7
How Janet Yellen’s Statement Affected Precious Metals
By Meera Shawn | Feb 16, 2017 12:10 pm EST
Yellen’s testimony

Janet Yellen, the chair of the Federal Reserve, said on Tuesday, February 14, that the US economy could likely be on a growth path and that the Fed could increase interest rates as early as its next meeting. Her hawkish comments hurt gold, and it fell to $1,222.1 an ounce to end the day at $1,223.9 per ounce. The call implied volatility in the metal also dropped to 11.6%.

The other three precious metals were, however, trading higher as compared to the previous day’s close. Silver, platinum, and palladium were 0.38%, 0.19%, and 0.77% higher, and ended the day at $17.9, $1,000, and $781, respectively.

How Janet Yellen’s Statement Affected Precious Metals

Yellen suggested that the Fed will be looking at the employment numbers from the US. If the results meet analyst expectations, the interest rate hike could be sooner than expected. With inflation at its target, it seems to be the right time for an interest rate hike. However, Yellen also noted the considerable uncertainty about economic policies during the Trump administration.
Impact on miners

Precious metals are negatively affected by interest rate hikes. The higher the interest soars, the lower the demand for the non-yield bearing assets like gold and silver. The changes in gold and silver also impact funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). These two funds saw a rise of 0.08% and 0.71%, respectively, on Tuesday.

The mining shares that were negatively impacted by Yellen’s speech include Royal Gold (RGLD), New Gold (NGD), Newmont Mining (NEM), and Goldcorp (GG). These four stocks fell 0.24%, 1.3%, 0.78%, and 0.84%, respectively. Together, the four mining stocks make up about 19.5% of the VanEck Vectors Gold Miners Fund (GDX).
Part 6
How Janet Yellen's Statement Affected Precious Metals PART 6 OF 7
Why Gold and the US Dollar Are Moving in Opposite Directions
By Meera Shawn | Feb 16, 2017 12:10 pm EST
US dollar rose

Gold prices tumbled on Tuesday, February 14, as the US dollar rose after the US Federal Reserve chair, Janet Yellen, seemed optimistic about raising interest rates. The rise in the dollar initially hampered precious metals, as a stronger dollar can cause dollar-based assets to fall. The dollar index reached its highest in more than three weeks following Yellen’s remarks. The US dollar index, which prices the dollar against a basket of six major world currencies, rose about 0.29% on Tuesday and has bagged almost a 1% increase during the past five trading days.

An increase in the dollar enhances the cost of dollar-based assets for buyers from other countries, and their prices may fall. Similarly, a fall in the dollar makes these assets more expensive, and their prices can rise. The weaker the US dollar gets, the easier it is for investors from other countries to invest in dollar-based assets such as precious metals. Precious metals and the US dollar are inversely correlated.

Why Gold and the US Dollar Are Moving in Opposite Directions
Correlation between the dollar and gold

The correlation between gold and the US Dollar Index is now -0.43, which means that about 43% of the time, gold and the dollar are moving in opposite directions. Silver’s correlation with the US Dollar Index is also about -0.43.

Changes due to movements in the dollar can be seen in mining funds such as the Global X Silver Miners Fund (SIL) and the VanEck Vectors Gold Miners (GDX). These two funds saw massive year-to-date rises alongside precious metals.

As precious metals have retreated over the past few days, precious metal mining stocks have also suffered. However, Gold Fields (GFI), Randgold Resources (GOLD),

Part 7
How Janet Yellen's Statement Affected Precious Metals PART 7 OF 7
Will a Gradual Hike in Rates Lead to Gradual Fall in Gold?
By Meera Shawn | Feb 16, 2017 12:10 pm EST
A gradual hike

As mentioned in our earlier article, Yellen’s comments indicated that we could likely see a rate hike in upcoming meetings. She did say “upcoming meetings,” rather than “meeting,” so a rate hike in March may or may not happen. She also emphasized that the Fed will hike rates gradually.

Precious metals are non-yield-paying assets, and their price suffers from an increase in interest rates because the opportunity cost of holding gold gets higher with higher yields (JNK) (BND). So even though the pace of the rise may be gradual, it may continue to negatively impact gold (GLD).

Uncertainty around Trump administration

Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, mentioned that the US may have to raise rates sooner as the uncertainty about the Trump administration may force the central bank’s hand.

The uncertainty surrounding the Trump administration has led to a rise of almost 10% for gold since its ten-month lows in December 2016. The funds flowing to gold-based GLD rose on Monday by nearly 0.5% and touched 840.9 tons.

The fluctuations in the precious metals are often replicated by the precious metal mining shares like Kinross Gold (KGC), Harmony Gold (HMY), Alacer Gold (ASR), and Eldorado Gold (EGO). These shares saw a gain of 17%, 12.2%, 23.1%, and 9.4%, respectively.

[christh] 17/2/2017 09:27

Why Rio Tinto Believes Iron Ore Prices Can Sustain
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
Ore prices are not going “off a cliff”

According to Bloomberg, Rio Tinto (RIO) CFO (chief financial officer) Chris Lynch has suggested that iron ore prices will not collapse, as many expect. Lynch believes that the Chinese economy will remain strong, which will support demand for higher-quality products. Specifically, Lynch stated: “I wouldn’t necessarily say that it’s going to fall off a cliff.”

Why Rio Tinto Believes Iron Ore Prices Can Sustain
Shift in consumption

Lynch points to another shift that is happening in the Chinese iron ore consumption—namely, the consumption of fewer polluting materials. In this context, Lynch stated: “The switch by mills to higher-quality imports will support Rio and other exporters, while China’s growth becomes less reliant on commodities as it balances toward consumption and services from a focus on infrastructure and construction.”

Investors should note that Rio Tinto was not always this positive on the prospects of iron ore prices.
BHP and Vale

BHP Billiton (BHP) believes that the surge in iron ore prices will likely cool down. BHP CEO Andrew Mackenzie predicted in 2016 that there will be at least ten years of iron ore oversupply before demand-supply balances itself. He also feels that iron ore will be one of the commodities (COMT) (DBC) that will take the longest to stabilize.

Meanwhile, Vale (VALE) inaugurated its biggest mining project, S11D, on December 17, 2016. It has started to ship volumes from its S11D project, which should boost export volumes. But low-cost supplies and additional ore certainly won’t likely bode well for iron ore prices going forward.

Part 6
Reading Iron Ore: A Surprise Surge, but What Now? PART 6 OF 14
Seaborne Iron Ore: Cliffs’ CEO Weighs In
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
Strong iron ore outlook

Cliffs Natural Resources (CLF) released its annual 2016 results on February 9, 2017. The company’s management was quite upbeat on the prospects of seaborne iron ore prices in 2017.

The company was so positive about the outlook, in fact, that it has given its EBITDA (earnings before interest, tax, depreciation, and amortization) guidance for 2017 based on the benchmark iron ore price of $81 per ton, which was the actual average over January 2017. The average of iron ore prices (COMT) over 2016 has been close to $59 per ton, in comparison.

Seaborne Iron Ore: Cliffs’ CEO Weighs In
Sanity in the iron ore market?

Cliffs CEO Lourenco Goncalves has been quite vocal in his disappointment over iron ore giants’ strategy of flooding the market with cheap iron ore to gain market share. Goncalves describes Rio Tinto (RIO), BHP Billiton (BHP) and Vale (VALE) as “the Three Stooges” and the execution of this strategy as a “bear strategy of self-destruction.”

During Cliffs’ 4Q16 earnings call, Goncalves stated: “We finally have sanity back in the seaborne iron ore market. I truly commend Rio Tinto and Vale for eliminating their reckless behavior that had infected the market for a number of years and destroyed several billions of dollars in equity value.”

Goncalves went on to state the following: “Once the market analysts saw iron ore prices at $40, they believed that this was the new normal. Not the case. For a controlled commodity like iron ore, in which only three big players have the ability to move market price up or down, this should never be the case. Iron ore at $40 is not, nor will it ever be normal.”
Demand side stable

On the demand side, Goncalves believes that China continues to perform and holds that pollution control in China will lead to the demand for better quality ore.

Notably, Goncalves mentioned the following during the 4Q16 conference call: “We’re not going to see China not producing, not buying iron ore, not deploying fixed assets. It’s the opposite. They will continue to grow fixed asset investments. They’ll continue to buy iron ore, but they will be more selective.”

Part 7
Reading Iron Ore: A Surprise Surge, but What Now? PART 7 OF 14
Inside the Strong Iron Ore Shipments in January
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
Iron ore shipments

Iron ore shipments from major ports in Australia and Brazil (EWZ) are key indicators for investors. They represent the supply side of the iron ore equation.

In this part of the series, we’ll discuss how shipments are shaping up for January 2017 and see how they’re expected to pan out going forward in 2017.

Inside the Strong Iron Ore Shipments in January
Iron ore exports remain strong

In January 2017, 40.3 million tons of iron ore were exported from Port Hedland. This amount was an impressive rise of 19% YoY (year-over-year), as compared to 33.8 million tons January 2016. The total shipments for 2016 reached a record 478.9 million tons—an annual rise of 7.4%.

Notably, major iron ore players BHP Billiton (BHP) (BBL), Fortescue Metals (FSUGY), Atlas Iron, and Rio Tinto (RIO) ship iron ore out of Cape Lambert and Dampier. Roy Hill, an iron ore project in Western Australia, started shipping iron ore in December 2015.

Meanwhile, iron ore exports from Brazil rose 15% YoY in January 2017 to 28.9 million tons.
More supply to pressure prices

Australia and Brazil are typically the lowest-cost iron ore producers. Rising exports from these destinations point to a robust low-cost supply. Investors should note that Vale (VALE) has started to ship volumes from its S11D project, which should boost export volumes.

Vale had already loaded 27,000 tons of iron ore as of January 20, 2017. And low-cost supplies and additional ore surely won’t bode well for iron ore prices going forward.

In the next part, let’s look at the iron ore inventory situation at Chinese ports. Part 8
Reading Iron Ore: A Surprise Surge, but What Now? PART 8 OF 14
Iron Ore’s Record-High Inventories, and What It Could Mean for Prices
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
China’s iron ore port inventory

China’s iron ore port inventory reflects the commodity’s supply and demand balance. It also indicates the safety net and imbalance between iron ore supply and steel mill demand. A high inventory is a sign of weak demand for raw materials, and vice versa.

Iron Ore’s Record-High Inventories, and What It Could Mean for Prices
Highest inventories on record

Iron ore inventories at Chinese ports have already risen 11% YTD (year-to-date) in 2017. Port inventories stood at 127 million tons on February 10, 2017, the highest level on record. This inventory level translates to an inventory-to-steel production ratio of 1.9x.

An inventory-to-steel production ratio is often preferred by analysts over raw inventory figures for tracking progress in the sector. The production ratio measures how much inventory is available to keep steel production activity going. The average for this ratio over the past five years is near 1.5x.

According to Axiom Capital Management, “When looking at days of iron ore inventory at China’s domestic mills, as well as iron ore inventories at China’s ports, we note that at no time in history have both of these inventory indicators been as high as they are today.” Axiom analysts believe this could have negative implications for the price.

Notably, the SPDR S&P Global Natural Resources ETF (GNR) tracks the Natural Resources Index. BHP makes up 5.0% of GNR’s portfolio holdings.
Negative fallout expected

Increasing inventories at ports amid steel demand that doesn’t seem sustainable could hurt iron ore prices. This trend will be negative for iron ore players involved in the seaborne iron ore trade, including BHP Billiton (BHP) (BBL), Rio Tinto (RIO), Vale (VALE), and Cliffs Natural Resources (CLF).

Remember, production and demand are vital in determining the outlook for seaborne iron ore prices. In the next part of this series, we’ll look at the outlook for China’s steel production and demand.

Part 9
Reading Iron Ore: A Surprise Surge, but What Now? PART 9 OF 14
What China’s High Iron Ore Imports Suggest
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
Second-highest iron ore imports

China imported a total of 92 million tons of iron ore in January 2017, which represents a growth of 12% YoY (year-over-year) and 3.4% month-over-month. This is also the second-highest monthly import volumes on record.

One reason for such strong volumes might be steel mills’ move to replenish inventory ahead of the Chinese new year. This was also somewhat expected, as exports from Australia and China were quite strong in December 2016.

What China’s High Iron Ore Imports Suggest

However, iron ore exports from Australia fell during January as compared to December. This slowdown might show up in China’s iron ore import data for February.

But contrary to what was expected by many market participants, China’s iron ore imports were also quite robust in 2016. They hit a yearly record in 2016. China’s 2016 iron ore imports came in at 1.0 billion tons, an annual rise of 7.5%.
Resilient demand

This rise was the result of two factors: resilient steel demand in China (partly driven by government stimulus measures) and the replacement of Chinese domestic iron ore production by the import of cheaper high-grade ore imports, mainly from Australia and Brazil.

While steel demand growth in 2017 depends on many factors such as construction sector growth and government stimulus, China’s crackdown on pollution will likely keep the replacement demand for iron ore going in 2017.
Customs data and China’s iron ore imports

China tracks its iron ore imports through customs data. This information is important for investors because it provides a good idea of the appetite for imported iron ore among Chinese mills and traders. China consumes more than two-thirds of all seaborne iron ore, and so its import appetite affects iron ore players involved in seaborne iron ore trade. These companies include Cliffs Natural Resources (CLF), Vale (VALE), and Rio Tinto (RIO).

The iShares MSCI Global Metals & Mining Producers ETF (PICK) invests in iron ore, and this information has an influence as well. BHP Billiton (BHP) is PICK’s top holding, making up 16.7% of the fund. The SPDR S&P Metals & Mining ETF (XME) also invests in some of the above-mentioned stocks.

In the next part of this series, we’ll discuss what’s supporting the current trend in steel production in China.

Part 10
Reading Iron Ore: A Surprise Surge, but What Now? PART 10 OF 14
Are China’s Steel Capacity Cuts for Real?
By Annie Gilroy | Feb 16, 2017 2:13 pm EST
China’s steel production outlook

China (FXI) (MCHI) produced 808.4 million tons of steel in 2016. It produced 68.9 million tons of steel products in December 2016, which represents a YoY (year-over-year) rise of 7.1% in addition to November’s 4.7% rise.

Are China’s Steel Capacity Cuts for Real?

The rise in December was China’s tenth straight monthly YoY rise in steel production. Steel production rose by 1.2% in 2016 as compared to 2015, contrary to what many market participants predicted at the start of the year. Most expected steel production to fall in 2016.
Fall predictions

Many market participants are now predicting falls in volumes in 2017. Hebei, China’s main steel-producing province, has increased its capacity-cutting targets for 2017, having announced a cut of ~32 million tons of steelmaking capacity in 2017.

China has been reeling under the overcapacity in the steel industry. While the planned capacity reduction for 2016 was 45 million tons, according to MVS estimates, the figure wound up being almost double, at 80 million tons.
Capacity cuts and steel industry

According to Greenpeace, “Steel production capacity elimination in 2016 exceeded targets, with a total of 85 million tons (Mt) of capacity closed. However, three different factors undermined the effectiveness of the efforts.” These factors included the following:

Only 23 million tons of actual operating capacity were idled as most other was already closed down.
About 49 million tons of previously idled capacity restarted due to recovery in prices.
About 12 million tons of new capacity were added.

If China cuts its steel capacity—which it may have to do, despite its apparent reluctance—there could be better days ahead for the global steel industry.

Sustained capacity rationalization could lead to higher steel prices, which should support iron ore prices. Such a development would also be positive for miners (XME) like Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale (VALE), and Cliffs Natural Resources (CLF).

[garfield8] 17/2/2017 08:56

Brexit and political change in the EUROPEAN are will be fantastic. We will have self rule again in the UK.

[ian davenport] 16/2/2017 16:54

Arja - I recall you have been a long term fan of Theresa!, must say I'm quite surprised by the tack that's been taken - my hope is that this is the hard negotiations that Cameron should have done when he had the chance, but didn't bother with as he assumed he'd win regardless. however if Le Pen and Wijlders win, the EU could be history - not something I look forward to having seen the cemeteries from WW1, but you just have to hope this anti establishment voting is a phase the world is going through - interesting how all this uncertainty doesn't seem to be holding back the stock market - and as a holder of physical gold, im pleased to see the PMs keeping up

[arja] 16/2/2017 15:28

afternoon ian - yes, the EU is far from perfect and of course excessive beaurocracy but the Uk government under the Tories is champion for that , eg a tourist visitor form and why only about 2 or 3% of Chinese tourists visit the Uk on their european holidays . They get a schengen visa and say " stuff you " when they see what is involved to get a UK visa . What a huge loss of revenue for Uk economy but xenophobio Tory imbeciles do not give a hoot about that .

[arja] 16/2/2017 14:29

Christh- agree about Brexit and I am a proud to be a REMOANER and hoped that there would be a second referendum to see if folk approved the hard brexit of the witch, TM, who is the most fanatical brexiteer . No chance of that after all the Tory MPs except Ken clarke ( good on yer mate ! ) and most of the labour MPs voted to keep their grossly overpaid jobs and perks instead of voting with their conscience and doing what is right ! ( wry smile )

[christh] 16/2/2017 09:31

Rio Tinto Doubles Dividend
Feb.15.17 | About: Rio Tinto (RIO)

Rio Tinto comfortably beats estimates.
Final dividend of 125 US cents, almost twice the minimum.
Debt reduction and a new share repurchase program.

Rio Tinto (NYSE:RIO) reported strong FY16 results and announced a higher than expected final dividend. The recovery of iron ore and coal prices in the second half of the 2016 more than compensated headwinds in the Aluminium and Copper & Diamonds segments.

While Rio Tinto's half-year results reported in August were clouded by lower commodity price pressure, the last six months of the year saw substantial improvements. This becomes most obvious when comparing a few key figures.

Rio Tinto 2016 Key Figures (all in $M)

.................................FY2016....1HY2016....2HY2016
Sales.............................33,781....15,500....18,281
Underlying EBITDA.................13,510.....5,367.....8,143
Underlying earnings................5,100.....1,563.....3,537
Net cash from operations...........8,465.....3,240.....5,225
Free cash flow.....................5,807.....1,922.....3,885


Source: company reports.

Sales in the second half of the year climbed by $2.8B, primarily due to higher prices for iron ore and coal. Since production costs were more or less constant, higher revenue directly leads to higher EBITDA and operating cash flow. Rio Tinto's free cash flow improved even more due to lower dividend payments in the second half-year and $354M cash inflows from asset sales.

The growing free cash flow allowed accelerated net debt reduction from $13.8B at the end of 2015 to $12.9B on June 30 and further to $9.6B at the end of 2016.

Rio Tinto's Dividend
-------------------------------
Rio Tinto final dividend for FY16 which will be paid in April climbs to 125 cents. To put this number into context, some explanations are helpful. Rio Tinto's dividend is paid in two installments, an interim dividend for the ongoing financial year in September and the final dividend in April. For FY15 both installments were identical, 107.5 cents each, adding up to an annual dividend of 215 cents.

In February 2016, the company announced a new dividend policy which led to a 58% reduction of the interim distribution from 107.5 cents to 45 cents. Rio Tinto also stated that for FY16, the board's intention was to distribute not less than 110 cents which means that the final dividend could not have been lower than 65 cents.

[ian davenport] 15/2/2017 21:18

Chris - don't forget quite a bit of that rise in the Rio share price is because of the weak (or as some have said, corrected) GBP/Usd rate
I think you'll find Arja is back in UK from previous posts, and I think you might be overreacting to the doom and gloom that will , maybe , hit us post Brexit
I'm not saying the Brexit campaign was any less economic with the facts than the Remain side, and I think most people who voted out did so with absolutely no comprehension of what they were voting for, but there a small but recognisable chance that there will be no EU to leave by the time we get article 50 launched down the slipway

[christh] 15/2/2017 20:39

thanks.
Have you made it yet? Are you a millionaire yet?
Good luck with your trading.

Are you happy in Australia or would you have better stay in UK?

things are getting worst in the UK, and will deteriorate when the UK
comes out of Europe.
The Brexit conspiracy was built on lies about £350million that will be going to the NHS.
And now NHS is in big trouble.No new money gone in and people wait longer for operations and treatment.

Cost of living is shooting up, people will be losing their jobs, hatred for foreigners, the £ has collapsed so going on holiday or buying imported goods cost dearer.

I do expect Rio to move above £44 by August as the commodities are in great demand.
Especially iron ore ,coal, copper, aluminium, gold and silver.