Despite the downgrade in its annual target, Rio produced 79.7 million tonnes of iron ore in the June quarter, up 12 percent from the previous three months.
“Around seven million tons of shipping capacity was lost directly at the ports due to uncharacteristically severe weather”, the company said Thursday.
As Rio Tinto and BHP Billiton ship more iron ore than ever to China, the Australia mining giants face a fightback from Brazil’s Vale for market share that threatens to drive already weak prices even lower.
Iron ore prices hit a 10-year low of $44.10 last week amid a meltdown in the Chinese share market, but the material has since lifted back above $US50.
Its second quarter shipments were up 8 per cent on the same time past year, taking its first half exports 8 per cent higher than past year.
The company said production increased despite unseasonal weather in the Pilbara throughout the first half, including Tropical Cyclones Olwyn and Quang.
This, it says, will lead it to take a non-cash impairment linked to special items relating to Minas-Rio and certain Australian coal assets of about $3billion to $4 billion on a post-tax basis. Vale’s ferrous executive director, Peter Poppinga, estimated Vale will reduce its iron ore production by 54 million mt by 2018, since there has been a “depletion” of iron ore reserves globally.
Rio Tinto’s share price has had a strong correlation to the spot price of iron ore in Asia, which is unsurprising given that the steel-making ingredient accounts for some 90 percent of the company’s revenue.
“They have been very clear in saying they are going to bring their expansion through because their costs are so low”, Mr McTaggart said.
When Vale flagged the cuts eight weeks ago, Fortescue chairman Andrew Forrest said, “We now have the Brazilian supermajor… stating that they will not fill their infrastructure if the market is not calling for the tonnes”. Vale said on Monday that it will reduce its supply of high silica iron ore by 25 million mt in 2015.
Hard coking coal production rose 15 per cent to 2.1 million tonnes while semi-soft and thermal output slipped 5 per cent to 5.1 million tonnes.
Coal prices have also been languishing at multiyear lows due to slowing demand and oversupply.
The UDP between the Government of Mongolia, Turquoise Hill Resources and Rio Tinto provides a pathway forward in addressing shareholder matters to restart underground development.