Rio Tinto may increase production guidance

Tue, Oct 13, 2009, 01:00

Iron ore miner Rio Tinto may be set to lift its 2009 production guidance by as much as 7 per cent to reflect improving conditions for steelmakers, analysts said today.

The company's third quarter production report scheduled for release tomorrow is likely to include an upward revision by as much as 14 million tonnes for iron ore output from the June 16 projection for 200 million tonnes, they said.

Rio Tinto, which ranks behind Brazil's Vale on iron ore production, was forced to accept price roll backs of 33-44 per cent and prospects of lower shipments this year as global steel makers braced for a dramatic slowing in demand that now may prove short-lived.

Price negotiations between miners and steel mills kick off tomorrow for 2010/2011 shipments and analysts are tipping increases of up to 15 per cent as steelmakers ramp up operations.

Rio's smaller Australian rival, Fortescue Metals Group, already reported third quarter output up 20 per cent, while closer peer BHP Billiton also is expected to show higher output when it updates on October 21st.

"BHP and Fortescue shipments in the September quarter have been very strong and it's fair to say Rio's will be up as well," said Hong-Kong-based CLSA mining analyst Matthew Whittall.

Rio Tinto's production is more difficult to gauge quarter by quarter because it exports material exclusively from two private ports - Lambert and Dampier - on the fringe of the Pilbara iron ore belt. Other miners use public terminals.

Rio Tinto's privately-owned ports and railways in the Pilbara can move about 220 million tonnes, leaving them under utilised and capable of transporting added tonnage.

World Steel Association data shows global steel production ran at an annualised rate of 1.278 billion tonnes in August 2009, up 26 per cent from the low in December 2008. Analysts are expecting year-on-year growth when September tallies are released later this month.

"We expect a strong result from Rio as the company continues to ramp up its production numbers post the global financial crisis," UBS mining analyst Glyn Lawcock said in a client note.

"Importantly, we believe the report may suggest that Rio may need to upgrade its 2009 full year production guidance for iron ore of 200 million tonnes globally," Lawcock said.

Royal Bank of Scotland is expecting a 15 per cent gain in Rio Tinto's second half production over the first half's 98 million tonnes, led by increased tonnages from the its Hamersley division in Australia, leading to 2009 output of about 212 million tonnes.