Iron ore supply will not increase significantly in the months ahead as the world’s biggest producers of the steelmaking raw material grapple with a range of issues from labour shortages to bad weather.
Global miner BHP said early on Tuesday Australia time it would start a “major maintenance” campaign over the next three months at Port Hedland, its key iron ore loading facility in Western Australia.
At the same time, Brazil’s Vale flagged up on Tuesday delays to the restarting of several operations, while Anglo American trimmed its iron ore sales guidance citing rail constraints and adverse whether in South Africa.
The updates show how the leading iron ore miners are finding it difficult to add more tonnes to the market at a time of record demand from Chinese steel mills.
They also suggest that iron ore prices, which have surged over the past year, could remain close to record levels and remain shielded from the selling pressure that has hit other commodities, including oil and copper, in recent weeks.
Last week, Rio Tinto, the world’s biggest iron ore miner, reported a 12 per cent decline in exports during the second quarter of 2022 and said the delivery of replacement mines in Australia was running late. As a result, iron ore shipments were set to be at the low end of its 325m to 340m tonne guidance range, the company said.
“Lower production volumes from these companies should be positive for commodity prices as long as the global economy is OK,” said Christopher LaFemina, analyst at Jefferies.
Bolstered by strong demand from China, benchmark iron ore prices hit a record high above $230 a tonne in May. Tepid supply growth has helped prop up prices, which at more than $220 a tonne on Tuesday are delivering a huge windfall for iron ore producers.
Analysts expect both Rio and BHP to declare dividends of nearly $10bn each when they report and results over the next month.
While BHP produced a record 284.1m tonnes of the steelmaking material in Western Australia in the 12 months to June, it expects output in 2022 of between 278m and 288m tonnes. That’s below its long-term target of 290m tonnes.
“We continue with our programme to further improve port reliability and this includes a major maintenance campaign,” the company said.
Set against the flat production outlook, BHP said it had received an average price of almost $160 a tonne for its iron ore in the half year to June, up 52 per cent from the previous six months.
Realised prices were even better at Anglo American, coming in at $200 a tonne and reflecting the high quality of its ore.
In its update, Vale, which was forced to curtail output following a deadly dam disaster in 2019, said its iron ore business had reached capacity of 330m tonnes in the past quarter.
But it also flagged delays to the start of some operations, leading some analysts to conclude that the Rio de Janeiro-based company would struggle to achieve its 2021 production forecasts.
“Full-year iron ore production guidance of 315-335m tonnes is maintained, but hitting even the bottom end of this range would require a strong second half of the year,” said LaFemina. “Doable, but risk is to the downside.”
Vale’s output will need need to average 86m tonnes per quarter in the second half of the year to hit the bottom of its targeted range. To put that figure in perspective, in three months to June its production was 75m tonnes.