The worlds top two iron-ore miners struggled to keep up with strong Chinese demand in the first quarter of 2021, hit by operational challenges and weather disruptions, in a positive sign for prices that are already at decade highs.
Brazils Vale churned out less ore than expected last quarter after lower productivity at one mine and a ship loader fire, with its recovery from an early-2019 tailings dam disaster proving a little slower than expected. Rio Tinto Groups shipments were disrupted by wetter-than-average weather at its Pilbara operations in Western Australia.
Benchmark iron-ore surged Monday over $180 a ton — the highest since May 2011 — following news that Chinas crude steel production jumped 19% last month from a year earlier to near a record. The nations output of the alloy is booming at the same time as a pollution crackdown has lifted prices and benefited profit margins at mills.
With the market relatively tight at the moment, it will certainly see any failure to meet current guidelines as relatively positive for the price, saidDaniel Hynes, senior commodities strategist at ANZ Banking Group. Vale and Rio both maintained their forecasts for full-year production, though a slower-than-expected recovery at Vale could see the market reset its expectations, he said.
Rio cautioned that its guidance for annual output of up to 340-million tons was subject to logistical risks associated with bringing 90-million tons of replacement mine capacity on stream. It also said that Tropical Cyclone Seroja had impacted its Pilbara mine and port operations in April.
It was a mediocre quarter for Rio, saidTyler Broda, mining analyst at RBC Capital Markets, said in a note. Quarterly production was 6% less than the banks estimate, he said. Not all that much is going in the right direction from a bottom-up basis for Rio Tinto as they continue to tackle the various challenges at their operations and projects, but main commodities iron ore and aluminum are both benefiting from the China decarbonisation theme.
Iron ore futures in Singapore rose as much as 1.9% to $180.55 a ton before trading at $178.50 by 9:04 a.m. local time. Prices in Dalian rose as much as 1.7% higher, while hot-rolled coil and rebar both rose in Shanghai.
Steel prices in China finished the quarter at decade highs as construction activity and demand in the first quarter exceeded both 2020 and 2019, Rio said. Strong demand and margins — at their highest since 2018 — have lifted demand for higher quality iron ore products and the nations renewed focus on reducing steelmaking emissions will likely restrain exports in 2021, supporting margins globally, the company said.
The short-term outlook for iron ore prices remained strong, ANZs Hynes said, with Chinese steel mills content to accept current high prices for their main feedstock while their margins were so strong. However, he added the cost of ore was now well above fair value, with the risk of a pullback later in the year if Beijings plans to curb steel production to control greenhouse gas emissions start to impact on demand.
If we saw a 1% fall in Chinese steel production that would potentially wipe out about 15-million to 20-million tons of iron-ore, said Hynes