Iron ore: BHP Joins Rio Tinto with Production Cuts

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Australia’s leading iron ore miners are retracting from their high production targets. The latest to make pruned production guidance was BHP Billiton with 10 million tons cuts in production from the current financial year.

According to BHP’s revised outlook, its Pilbara mines will produce 260 MT this year, down from the 270 MT it projected previously, reports The West Australian.

On Tuesday, Rio Tinto announced cut in the 2017 production outlook by 10MT to 20MT pointing to delays in the introduction of the driverless train system.

Rio Tinto blamed the poor weather and an accelerated rail maintenance program for the guidance change.

BHP’s new guidance endorses analyst suggestions that Pilbara majors are shifting to quality from quantity. However, BHP has left the average cash cost guidance unchanged at $US15/ton. Pilbara mines shipped 61.5 MT in the March quarter, compared to 64.2 MT in the December period.

BHP’s Pilbara operations so far had an output of 192.8 MT in the nine months that ended in March.

Nevertheless, some analysts are surprised at the slashed targets as one of the major exporters, Fortescue Metals Group, had exceeded production targets in the March period by adding more tons thanks to a benign cyclone season.

Meanwhile, the Mining News reported the good news of a new rally in the iron ore prices. On Tuesday, the price crossed the $60 mark for the first time in more than a month.

Northern China benchmark prices too jumped 3.2 percent to $61.80 per dry metric tons according to the Steel Index.

Iron ore price surged 7.5 percent over two days of trading and marked a 44 percent rise on year to year basis and two-thirds surge from near-decade lows of mid-December.

However, Goldman Sachs said the average price outlook this year at $38 (Q1 average is $48) has not changed. The median iron ore price forecast by Bloomberg was $45 per ton. Citigroup expressed doubts about the viability of the rally saying “prices may remain high in the second quarter before the rally fades.”

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