The supply of iron ore will not increase significantly in the coming months to meet strong demand as the world’s largest producers of steel raw materials grapple with a range of issues ranging from labor shortages to work to bad weather.
Global miner BHP said on Tuesday morning Australian time that it would launch a ‘major maintenance’ campaign over the next three months at Port Hedland, its main iron ore loading facility in Western Australia .
At the same time, Brazil’s Vale on Tuesday reported delays in restarting several operations, while Anglo American cut its iron ore sales forecast citing rail constraints and unfavorable South Africa.
The updates show how major iron ore miners are operating at full capacity and struggling 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 stay near record highs and remain immune to the selling pressure that has hit other commodities, notably the oil and copper in recent weeks.
Last week, Rio Tinto, the world’s largest iron ore miner, reported a 12% drop in exports in the second quarter of 2022 and said delivery of replacement mines to Australia was overdue. As a result, iron ore shipments were expected to be at the low end of its forecast range of 325 to 340 million tonnes, the company said.
“Declining production volumes from these companies should be positive for commodity prices as long as the global economy is doing well,” said Christopher LaFemina, analyst at Jefferies.
Supported by strong demand from China, benchmark iron ore prices hit a record high above $ 230 per tonne in May. Lukewarm supply growth has helped support prices, which, at over $ 220 a tonne on Tuesday, are a huge boon for iron ore producers.
Analysts expect Rio and BHP to declare dividends of nearly $ 10 billion each when they release and report results in the next month.
While BHP produced a record 284.1 million tonnes of steelmaking material in Western Australia in the 12 months to June, it expects 2022 production of between 278 million and 288 million. tons. That’s below its long-term target of 290 million tonnes.
“We are continuing our program to further improve the reliability of the port and this includes a major maintenance campaign,” the company said.
Given the stable production outlook, BHP said it received an average price of nearly $ 160 per tonne for its iron ore in the half-year to June, up 52% from the previous six months. .
Anglo American realized prices were even better, reaching $ 200 per tonne and reflecting the high quality of its ore.
In its update, Vale, which was forced to cut production following a deadly dam disaster in 2019, said its iron ore business had reached a capacity of 330 million tonnes during of the last quarter.
But he also reported delays in starting some operations, leading some analysts to conclude that the Rio de Janeiro-based company would struggle to meet its production forecast for 2021.
“Full-year iron ore production forecast of 315 to 335 million tonnes is maintained, but even reaching the low end of this range would require a strong second half,” LaFemina said. “Feasible, but the risk is on the decline. “
Vale’s production will need to average 86 million tonnes per quarter in the second half of the year to hit the bottom of its target range. To put that number into perspective, in three months to June, its production was 75 million tonnes.