ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Commodities

Australia iron ore miners see a light at the end of the tunnel

Chinese economic stimulus to give Rio Tinto and BHP a leg up

Rio Tinto's fleet of autonomous trucks has helped improve output efficiency at iron ore mines.   © Rio Tinto

SYDNEY -- Mining majors Rio Tinto and BHP Billiton both foresee long-awaited upturns in iron ore production in the near future thanks to fresh demand from China, which is rolling out an ambitious economic stimulus program.

Both companies reported year-on-year declines in output of iron ore, the main material used to make steel, for the quarter ended March. Rio in particular was hammered by Tropical Cyclone Veronica, which damaged a Western Australia port late that month. First-quarter iron ore shipments sank 14% to 69.1 million tons, while production declined 9% to 76 million tons.

"Our iron ore business faced several challenges at the start of this year, particularly from tropical cyclones," said Jean-Sebastien Jacques, Rio Tinto's chief executive, in a news release.

BHP reported a 5% decline in January-March iron ore output for its Western Australia Iron Ore operations. But the two companies expect a turnaround sometime later this year.

Rio expects to lose 14 million tons of production in 2019 to the cyclone and a January fire at an export terminal. But the group predicts shipments of 333 million tons to 343 million tons, putting it in line with last year's finish of 338 million tons.

BHP put the tropical cyclone's negative impact at as much as 8 million tons. But the company expects to produce between 265 million tons and 270 million tons of iron ore for the full year ending June, slightly down from 275 million tons for the period last year.

Contributing to the upbeat outlooks is the speed at which ports, rails and other cyclone-damaged facilities are being repaired. Automation is also helping improve output efficiency.

Rio and BHP are also getting a demand-side lift from economic stimulus measures implemented in China last autumn. Infrastructure spending rose there in the first quarter of 2019, feeding steel demand. China is the biggest consumer of Australian iron ore, accounting for 81% of the estimated 836 million tons exported last year.

Rio and BHP have not expressed concern about Chinese demand going forward. "There is no doubt that the Chinese economy is still slowing down, but it is as expected. ... Even growing between 6 and 6 1/2% per annum is a massive number," Rio CEO Jacques told CNBC in March. China's environmental policies are "very good for us" in terms of demand for high-quality raw materials, he said.

BHP CEO Andrew Mackenzie spoke of the potential benefits of China's Belt and Road cross-border infrastructure initiative for his company at an event in Beijing this March. "Our analysis at BHP shows that Belt and Road Initiative projects can generate up to 150 million tons of incremental growth in steel demand," he said in prepared remarks.

The price of Australian iron ore has risen 30% to $95 per ton so far in 2019. The Australian cyclone -- along with a dam accident sustained by Brazil's Vale, the world largest producer of iron ore -- will drag on global output of the mineral by 100 million tons this year, according to Morningstar analyst Matthew Hodge. The supply crunch means that prices will remain resilient, he predicts.

But the Chinese economy is dependent on stimulus measures, and its iron ore imports are not expected to hold up in the long term. The Australian government estimates that Chinese imports will fall from 1.06 billion tons in 2018 to 995 million tons in 2023. Alex Griffiths, principal analyst at Wood Mackenzie, does not see growth in the Chinese market past 2021.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends June 30th

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media