Ground Breakers: Rio faces tough race to meet forecast as commodity prices crush miners
- Iron ore tumbles as real estate concerns regain the upper hand in China, other commodities struggle
- Rio Tinto ramps up production in June quarter at iron ore mines, but will need more ramp-ups to meet guidance
- Materials stocks fall more than 3% on bad price news
Iron ore briefly dipped below US$100/t overnight as Chinese owners regrouped to give the middle finger to property developers who stopped work on construction projects.
Those houses aren’t built, they don’t pay their mortgages, real estate demand plummets, and steel plummets with it.
“The China Real Estate Information Corporation (CREIC) reported that homebuyers in China halted mortgage payments on at least 100 unfinished projects in more than 50 cities on Wednesday — down from 28 projects on Monday and 58 projects on Tuesday,” Vivek said. Dhar from Commbank.
“Reduced confidence that property developers will complete projects is likely a key factor in the rapid rise in projects facing mortgage repayment issues.
“A number of Chinese property developers are in dire financial straits. It should be noted that it is common in China for houses to be sold before they are built.
“China’s new home prices (combining all levels) have fallen for nine consecutive months through May 2022, meaning that the current value of homes under construction is likely lower than what was incurred when sold. of the property. Whatever the motivation, it seems likely that new headwinds await China’s beleaguered housing construction sector.
As Dhar likes to mention, building construction accounts for 30% of China’s steel demand and 20-30% of its copper, aluminum and zinc end use. These commodities look a little fragile today, with copper threatening to drop below US$7,000/t and gold at 11-month lows.
What a day for Rio Tinto (ASX:RIO) to deliver another quarterly production report that analysts call a dud.
Rio will make another late run to meet guidelines
We’ve waited long enough to jump into the Kate Bush gravy boat brought about by the new season of Netflix’s Stranger Things, a sci-fi horror series in which the real mystery is how some of her rotten dialogue got past a ream of script editors.
But Rio is still going to be…uh…RUNNING UP THAT HILL to make its 2022 iron ore forecast.
Its Pilbara operations shipped 79.9 Mt in the June quarter, up 12% from the first quarter and 5% from the second quarter in 2021.
But Rio still needs to produce at a rate of nearly 85 Mt per quarter until the second half of the year to reach the lower limit of its forecast of 320 to 335 Mt.
It maintained its cost forecast at USD 19.50-21/t for the Pilbara operations, but could come under pressure on earnings as iron ore, copper and aluminum prices fall during the month. June quarter.
Rio iron ore realized prices were US$110.7/t in the June quarter and US$110.9/t in the first half, compared to US$154.9/t in the first half 2021.
Rio maintained its focus in the key segments of iron ore, bauxite, copper and iron ore pellets, its high-grade operations of the Iron Ore Company of Canada.
But the mining giant reversed forecasts for its diamond, alumina and aluminum segments, and added $300 million to the budget for its Oyu Tolgoi underground development in Mongolia, which will now cost $7.06 billion after a review in June 2022.
Key for Rio to hit the bottom of its iron ore guidance will be increased production at Robe Valley and the new Gudai-Darri, which will reach full operating rate of 43 Mtpy by 2023 and improve the quality of its overall product.
“Gudai-Darri delivered the first ore from the main plant in June,” Rio said.
“As Gudai-Darri continues to ramp up, we expect higher production volumes and an improved product mix in the second half. Full-year shipment guidance remains unchanged at 320-335 million. tons.
Rio Tinto shares fall, but aren’t we all
Rio shares fell 3.22% to $92.92 on the news, with its London stock even further off the mark with a 4.7% decline.
RBC analyst Tyler Broda said the company was starting to approach fair value as its share price fell in weaker markets in recent weeks.
“There could be a positive reading on this quarter as costs aren’t rising, but there’s not much else to be too positive about and that’s only been made possible by the very Australian dollar. weak,” he said.
“Lower realized iron ore prices, higher than expected (relative to consensus), preliminary copper prices and downward revisions to aluminum forecasts should all combine to reduce consensus estimates to the half-year results approach in a week.
“Another period with a lack of operational momentum does not help in this type of market.”
That said, Rio wasn’t alone this morning, with shitty falls in commodity prices dampening the mood for materials, which fell 3.19% this morning.
BHP (ASX:BHP) lost 3.69% while Fortescue (ASX:FMG) fell 4.88%.
Gold indicators were all in the red, with Northern Star (ASX:NST), Evolution (ASX:EVN) and Newcrest (ASX:NCM) all down 2% or more.
Ground Breakers stock price today: