Analysis: Australian iron ore shipments to rise

Two of Australia's three biggest iron ore producers — UK-Australian mining firm BHP Billiton and independent Fortescue Metals — are likely to hit or exceed the top end of their production guidance for the 2016-17 financial year that ended 30 June. But the third big producer, UK-Australian firm Rio Tinto, must increase shipments by 13pc in July-December just to hit the bottom of its target range for the 2017 calendar year.

Fortescue shipped 125.6mn t in the nine months to the end of March, leaving it needing to ship another 44.4mn t in April-June to hit the top of its 2016-17 iron ore shipment guidance of 165mn-170mn t. Shipping data suggest Fortescue is on track to achieve this, and could even exceed it.

Fortescue shipped 169.4mn t of iron ore in the 2015-16 fiscal year and 165.4mn t in 2014-15. The firm has been an advocate for production discipline, after huge output increases from BHP Billiton and Rio Tinto led to a collapse in the iron ore price in 2015. But productivity improvements have helped its production edge higher and it may increase its output forecast again in 2017-18.

BHP Billiton narrowed its 2016-17 production guidance for its Western Australian Iron Ore assets to 268mn-272mn wet metric tonnes (wmt) in April, as it faced permitting hurdles in its push to raise output to 290mn wmt in 2018-19. But the company succeeded in securing an increase its export licence to 275mn wmt/yr from 270mn t/yr shortly afterwards, which has allowed it to boost exports in the latest quarter.

BHP Billiton produced 199mn wmt in the nine months to 31 March, and analysts expect it to comfortably meet its guidance for the year. The firm then expects to ramp up to 290mn t/yr in 2017-18, assuming it is granted an export licence for the higher amount.

Rio Tinto, which unlike the other two companies reports on a calendar year basis, will have to work hard in July-December to meet its 330mn-340mn t target for 2017, which could lead to an influx of its Pilbara Blend over the next six months. Early figures suggest it shipped just under 155mn t in January-June, leaving it needing to raise shipments by 13-19pc to 175mn-185mn t in the second half to meet its budget. The increase could depress prices in the second half of the year, barring any reduction in the forecasts when it announces half-year results.

Another factor that could weigh on prices is the ramp-up of independent Roy Hill's 55mn t/yr project in Western Australia, which has so far underperformed expectations but could surprise in the second half. Roy Hill only shipped around 16mn t/yr in January-June, which it blamed on the wet season, but it is under extreme pressure to deliver in the second half of this year — particularly as its original deadline to ramp up to full capacity was in late 2016.

The Argus ICX, the price for 62pc Fe Chinese imported iron ore, was assessed at $64.45/t cfr China yesterday, up from $55.30/t a month earlier but down from $92.20/t in mid-March.