A mixed bag of comment from Rio Tinto in its second quarter and first half production report issued yesterday.
There was a small fall in second quarter iron ore production, but no increase in the 2010 output forecast; lot’s of talk about strong markets and growth, but also a recognition that the bloom may have gone off world economic activity in recent weeks.
More importantly there was no news on third quarter iron ore pricing, except to say it would be set on the basis of "iron ore prices (from 1 July) will be based on the average indexed price from March to May 2010".
That means the price will be higher than the current spot market, which is trading around $US128 a tonne in China (including freight and insurance).
It also suggests that Rio is expecting a fall in fourth quarter pricing which will be based on prices from June to August.
The company said that although global iron ore production was 2% lower in the second quarter of 2010 than the same period last year, first-half production was 15% higher than the first half of 2009 when markets were recovering from the global financial crisis.
Rio also said yesterday that it will invest $200 million to expand its Pilbara iron ore operations to 330 million tonnes a year of output.
”2010 continues to shape up well for Rio Tinto and we are driving our operations at close to capacity,” chief executive, Tom Albanese, said in the statement.
”Markets for most of our products are strong and the overall long-term demand outlook is positive."
Mr Albanese said that in recent weeks fears about a possible double-dip recession in OECD countries and a slight slowdown in Chinese growth had led to some weakening in market sentiment.
”We believe this pattern of volatility in the global economy is set to continue,” he said.
But he was nevertheless upbeat about the outlook, saying:
"Growth is firmly back on our agenda.
"We have a large range of options for expansion and investment competing for capital.
"Now that much of the uncertainty over the Australian resource tax has been removed, we are starting to move ahead with projects there with the announcement today of $200m of funding to prepare for the expansion of our Pilbara operations to 330 million tonnes a year."
The forecast for 2010 global iron ore production from the company’s Australian and Canadian operations, was maintained at 234 million tonnes (on a 100% basis), the same as at the end of the first quarter.
That is also a recognition that the 18 month surge in global steel output and iron ore demand is slowing, with Chinese steel companies expecting to see a moderation in production in the coming half year.
Indeed, figures out last weekend showed a 9.1% fall in Chinese iron ore imports in June from May and they are now down 25% from the record 62 million tonnes imported last December.
Rio said that second quarter sales volumes from the
That was up 5% from the March quarter and 6% from June quarter of 2009.
"Shipments to all major markets, including the largest single market, China, were maintained at or close to capacity levels and totalled over 220 million tonnes over the course of the past twelve months," Rio said in yesterday’s report.
"During the quarter, agreements were signed with around 50 per cent of Asian customers for pricing on a quarterly basis reflecting the structural shift away from annual benchmark pricing. Sales are being provisionally priced to all other customers on the same basis."
Earlier yesterday Rio announced the approval of $200 million to prepare for the expansion of its iron ore operations in Western Australia, to allow dredging contracts to be issued as part of early works on the expansion of the Cape Lambert port, supporting the Pilbara operations’ overall capacity increase to 330 million tonnes a year (Mt/a) and beyond.
Rio said the planned growth of its Pilbara iron ore operations to 330 Mt/a capacity consists of the following steps:
- 225 Mt/a by Q1 2011 – Dampier port systems efficiencies (in implementation)
- 230 Mt/a by Q2 2012 – Dampier port incremental gains (in feasibility study)
- 280 Mt/a by H1 2014 – CLB 1st 50 Mt/a increment (now in feasibility study)
- 330 Mt/a by H1 2016 – CLB 2nd 50 Mt/a increment (pre-feasibility completed)
At the Iron Ore Company of Canada, "a higher pellet to concentrate final product ratio at IOC in the second quarter resulted in nine per cent lower total tonnes produced overall as there is a weight loss in transforming concentrate to higher value pellets.
"Second quarter production of pellets were 55 per cent higher than the corresponding quarter of 2009 following a return to full capacity with all six pellet furnaces in production. This increased demand for pellets, which create more margin than concentrates, led to a 60 per cent decline in second quarter concentrate production."
Elsewhere, Rio said that its mined copper and gold production were down 19% and 34%, respectively, on the second quarter of 2009, primarily due to lower grades at Kennecott Utah Copper and Grasberg in Indonesia.
"In 2010, Rio Tinto’s share of mined and refined copper production is expected to be 690,000 tonnes and 380,000 tonnes, respectively," the company said.
Molybdenum production was 14% higher than the second q
