Iron Ore, Copper Still Problematic for Rio

Rio Tinto might have vowed to get its iron ore business back to growth, but that will remain an unfulfilled vow this year at least.

The world’s biggest iron ore group reported a drop in its yearly shipments of iron ore for 2021 after a weak performance in the December quarter and has set the lowest guidance for the new year for at least five years.

Sales at 322 million tonnes for all of 2021 was in fact down 2020’s 331 million, 2019’s 327 million and the all-time peak, 2018’s 338 million tonnes.

Guidance for 2022 was set at 320 to 335 million tonnes against 325 million to 340 million set at the end of 2020. The 2018 guidance figure of 338 to 350 million remains the high and highly unlikely that it will ever be met, given the weak outlook from major market, China.

Rio’s weak guidance came after China revealed lower iron ore imports in 2021 and crude steel output for the year, and no hint whatsoever that any improvement is in the offing.

China on Monday signalled the weakness in the economy by easing a key interest rate to free up more cash for banks – the third move to free up more money since last July – the first two have had no impact after $US350 billion was released last year.

According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China fell 2% on Monday in the wake of the weak iron ore import data and crude steel production data. The price ended at just under $US126 a tonne.

Rio Tinto’s share price eased 0.3% to $109.65 as investors struggled to take any positives from the December quarter and full year data.

On its iron ore business in the Pilbara in 2021, Rio said

“Pilbara operations produced 319.7 million tons (Rio Tinto share 266.8 million tons) in 2021, 4% lower than 2020.

“This was due to above average rainfall in the first half of the year, cultural heritage management and delays in growth and brownfield mine replacement tie-in projects. Ongoing Covid-19 restrictions and a tight labour market have further impacted our ability to access experienced contractors and particular skill sets.

“Production from the new greenfields mine at Gudai-Darri and brownfield mine replacement project at Robe Valley, was delayed due to Covid-19 impact on labor availability and an inability to conduct pre-delivery quality assurance and control at international steel manufacturers due to limitations on travel.”

And the miner was as upbeat as it could be about China

On China’s steel market Rio wrote in its 4th quarter report:

“China’s crude steel production and iron ore imports were stable year on year, with steel production exceeding 1 billion [metric] tons for a second time, despite numerous steel mill operating restrictions and a slowing property sector.

“Steel consumption and production rates in China decelerated significantly during the fourth quarter of 2021 however, iron ore seaborne supply improved, resulting in a circa 30% decline in iron ore prices in the fourth quarter versus the prior quarter.

“Meanwhile, the steel and iron ore demand recovery in developed and other emerging economies maintained its momentum and global crude steel production grew by an estimated 6% year on year–by one of its largest absolute annual increments in history–to a record total of almost 2 billion tons in 2021.”

China has reported slides in iron ore and crude steel output for 2021 and forecasts a dip under the 1 billion tonne mark this year.

In fact China’s crude steel production boom of the past six years ended in 2021, retreating from record levels of 2020 as the country continued efforts to contain carbon emissions in its mammoth metal bashing sector and demand weakened as the property crisis took hold in the final months of the year.

2021 crude steel output was down 3% from 2020’s 1.065 billion tonnes at 1.03 billion tonnes as December’s production recovered strongly from November’s depressed levels.

Steel output is seen falling further in 2022 to end the year under the billion-tonne level thanks to weak demand expected from property and continuing restrictions on output in northern steel-making cities up to the start of the June quarter.

After soaring 12% in the six months to June, China’s steel production was crimped by at times harsh government controls on emissions and the impact of power shortages in September and October, plus the weaker demand from property and construction in the closing months of the year.

In the second half of 2021, China produced 470.86 million tonnes of crude steel, down 16% from July-December period in 2020 and an annual rate of around 940 million tonnes.

That is the reality for the likes of Rio and BHP – which is due to release its December quarter and half year figures on Wednesday.

The slide on crude steel output helps explain the drop in iron ore imports in 2021, especially in the second half when China’s iron ore imports slid nearly 10% from the same period of 2020.

Iron ore imports dropped 4.3% last year to 1.12 billion tonnes from 2020’s record high of 1.165 billion tonnes. 2021’s total was just above the 1.07 billion tonnes imported in 2019.

Rio’s 2022 forecast of a range of 320 to 335 million implies no growth is expected this year.

Brazilian rival Vale has lopped the ceiling for its 2021 iron ore production outlook to 320 million tonnes from a previous estimate of 335 million tonnes, while leaving the lower end of the forecast range at 315 million tonnes and set a 2022 production 320 to -335 million tonnes – no different to Rio’s and implying little, if any growth.

Vale’s January production and exports have been hit by heavy rain in its southern mining area.

Rio told investors on Tuesday it had shipped 84.1 million tonnes of ore from its Pilbara operations in the December quarter, in line with its target and analysts’ expectations, but 5% lower than the final quarter of 2022.

The result brings Rio Tinto’s total shipments of iron ore last year to 321.6 million tonnes, down 3% from the year before.

Rio Tinto chief executive Jakob Stausholm said operating conditions remained “challenging” including due to prolonged pandemic-related disruptions across its operations.

“Despite this, we progressed a number of our projects, including the Pilbara replacement mines, underlining the resilience of the business,” Mr Stausholm said.

The mining giant in December cut 5 million tonnes from the bottom line of its iron ore target, citing a “tight labour market” in WA’s Pilbara mining heartland


Copper is Rio’s second major business and Rio told the market Tuesday that mined copper production of 494,000 tonnes was 7% lower than 2020 due to lower recoveries and throughput at Escondida (in Chile, controlled by BHP) as a result of the prolonged impact of COVID-19, partly offset by higher recoveries and grades at Oyu Tolgoi in Mongolia and Kennecott in the US (owned with BHP).

The situation in Mongolia remains a major worry thanks to continuing Covid crackdowns in China, the major market for the mine.

Rio said on Tuesday “Mined copper production from the open pit (at Oyu Tolgoi) was 9% higher than 2020 with improved performance, temporary increase in grades, and increased mill feed following geotechnical issues in the first half, partly offset by lower staffing levels due to Covid-19.

“In the fourth quarter, stringent Chinese border restrictions continued due to increased cases of Covid-19 in Mongolia. We continue to work closely with the Mongolian and Chinese authorities and our customers to manage the risk of supply chain disruptions.

“Cross-border concentrate shipments into China have resumed with some measures in place to transport greater volumes in a safe and efficient manner, however uncertainty continues to exist with the rate of Covid-19 cases in Mongolia.

The force majeure declared on shipments from March 30 remains in place.”

That has helped keep world copper prices well above $US4 a pound.

Mined copper estimates for 2022 from Rio were in the range 500,000 575,000 tonnes and depends on the progress of Covid in Mongolia, China and in Chile and the uSA.

Bauxite production of 54.3 million tonnes was 3% lower than 2020 due to severe wet weather in the first quarter impacting system stability throughout the year, equipment reliability issues and overruns on planned shutdowns at our Pacific operations.

Wet weather has hit the region again this month (January).

Aluminium production of 3.2 million tonnes was 1% lower than 2020 due to reduced capacity at Rio’s Kitimat smelter in Canada following the strike which commenced in July 2021. The labour union and employees have reached an agreement with controlled restart this year.

Rio sees no real growth in 2022 for bauxite with production targets in the range of 54 to 57 million tonnes, alumina production targets are 8 to 8.4 million tonnes and aluminium production targets 3.1 to 3.2 million tonnes.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →