Rio Tinto Shares Fall on Shipments Downgrade (ASX:RIO)

The Rio Tinto Ltd [ASX:RIO] updated the investors on a ‘difficult’ third quarter, downgrading its full-year production guidance.

The market was hardly moved, however, seemingly anticipating such downgrades amid a floundering iron ore market.

Rio Tinto Ltd [ASX:RIO] share price were slightly down 1% at time of writing, trading at $99.51 per share.

ASX RIO - Rio Tinto Share Price ChartSource:

RIO’s Q3 operational highlights  

Rio Tinto today reported on a ‘difficult’ third quarter, which led to it downgrading its full-year guidance.

In the third quarter, Pilbara iron shipments stood at 83.4Mt, an increase of 2% year-on-year (YoY), whereas an increase of 9% quarter-on-quarter (QoQ).

But Pilbara iron ore production of 83.3Mt was 4% lower than the third quarter of 2020 due to heritage management and mine replacement tie-ins.

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Moreover, bauxite production was down 3% YoY but up 2% QoQ to 14Kt, while aluminium production was down 3% YoY, and 5% QoQ to 774Kt.

RIO’s 2021 production guidance

Rio decided to downgrade its guidance for some of its key commodities, including iron ore.

Rio Tinto Chief Executive Jakob Stausholm said:

It has been another difficult quarter operationally and despite improving versus the prior quarter, we recognize the opportunity to raise our performance. We have consequently modestly adjusted our guidance.

Rio noted that it is now expecting Pilbara Shipments to be 320Mt to 325Mt. Previously, the guidance stood at the low end of 325Mt to 340Mt.

The primary reason was ‘modest delays’ incurred in completing the new greenfield mine at Gudai-Darri and the Robe Valley brownfield mine replacement project.

Rio attributed the delays to a tight labour market in Western Australia.

Rio also trimmed its bauxite production from 56–59Mt to 54–55Mt, with mined copper production guidance cut from 500–550Kt to 500Kt.

2021 Production GuidanceSource: Rio Tinto

What next for Rio Tinto?

With iron ore playing such a huge part in its fortunes, Rio didn’t pass on the chance to offer its thoughts on the flagging iron ore market.

As Rio summarised in today’s update:

Iron ore prices retreated from their record levels in the second quarter of 2021, but remained reasonably-supported averaging $163/dmt CFR during the third quarter.

On the supply side, aggregate shipments of the major seaborne suppliers are trending flat year on year and are not expected to regain their 2018 levels for the third consecutive year. Higher-cost operations which were incentivised by elevated prices have started to reassess their viability.

In contrast, global crude steel output is up over 10% year to date and remains on track to reach an all-time high of ~2 billion tonnes in 2021. Steel prices in China fell sharply at the end of the second quarter, but have since stabilised boosting mill profitability; ex-China prices remain at or close to record highs.’

The miner also noted that China’s economic growth was slowing.

With China being the world’s largest iron ore importer, this poses risks. Rio admitted ‘there are some clear headwinds from recent regulatory tightening and the transition may lead to some near-term volatility.

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Kiryll Prakapenka,

For The Rum Rebellion

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