Rio Tinto announces drastic cut to 2017 iron ore guidance

By Paul Ploumis (ScrapMonster Author)

April 19, 2016 05:31:55 AM

SPOKANE (Scrap Monster): Iron ore major, Rio Tinto has announced drastic cut to its iron ore production guidance for 2017. The output guidance for the next year has been cut by as much as 20 million tonnes. However, the company expressed confidence that it would be able to meet its guidance for the current year.

The iron ore production by Rio Tinto during the March quarter of the current year dropped sharply by nearly 12% over the previous quarter, mainly on account of cyclone which hit the Pilbara mines during the month of January this year. However, global iron ore shipments rose 11% during the quarter to 80.8 million tonnes. The company noted that it is on track to meet its 2016 iron ore guidance of 350 million tonnes.

Rio Tinto has cut its production guidance for 2017 by 20 million tonnes. The Pilbara production is expected to be in the range of 330-340 million tonnes in 2017, as against the earlier guidance of 350 million tonnes.

The productivity at the mines will be impacted by the delay in the roll out of its driverless train system which was originally expected to be completed during last year. According to Rio Tinto, testing and verification of the system is being carried out and that over 75,000 kilometres of mainline trials have been completed. The delay in approval for the Silvergrass mine in the Pilbara is also cited as the reason for lowering the production guidance for 2017. The investment decision which was earlier scheduled for mid-2016 has now been pushed to the second half.

Meantime, analysts noted that the lower production guidance by Rio Tinto will positively impact market sentiment. UBS noted that the announcement has come in the midst of reports that BHP also plans to trim its output in 2017. The production cut by the two major iron ore producers would lead to more balance in the supply-demand situation for the steel making raw material. UBS also noted that the quarterly shipment of 80.8 million tonnes reported by the company is in line with the full year target of around 350 million tonnes.