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 rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
October 20, 2016 02:33 ET (06:33 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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