Iron ore majors quarterly previews

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From UBS’s excellent Glyn Lawcock today come previews of miner quarterly reports.

For BHP:

The March quarter is generally a weaker quarter for the miners, in particular BHP Billiton given the wet season that prevails across the top end of Australia.

Seasonally cyclonic conditions exist across the QLD Coal fields and the West Australian iron ore region which coupled with the miners propensity to schedule planned maintenance in the quarter has traditionally lead to lower bulk commodity output. We forecast WA iron ore production (100%) to drop back slightly to 53.0Mt from 53.6Mt in DQ 13, with the ramp up of the new Jimblebar mine seen offsetting scheduled maintenance across the other assets. YTD production of 161Mt will set another record for the first nine months. At the global level, we forecast production of 48.4Mt (equity) versus 48.9Mt in DQ 13. Given the wet season has not been too severe and BHP continues to focus on productivity, our estimate may be conservative.

For RIO:

As is the case for BHP Billiton, the March quarter is seasonally the weaker quarter due to weather and scheduled maintenance for Rio Tinto also. We forecast global iron ore production (100%) of 65Mt in the March quarter, down 8% sequentially.

The drop reflects our expectation that IOC in Canada has had a tough quarter due to the colder than average winter. Rio surprised us with its 2014 guidance of 295Mt (100%) produced globally as we were expecting >300Mt in 2014, so it would seem to us that the March quarter should be soft otherwise guidance may prove conservative as we understand the ramp up to 290Mtpa by the Pilbara assets is progressing well with days displaying that rate already, but not on a sustainable basis.

For FMG:

We forecast iron ore shipments of 31.5Mt (FMG’s equity share) for the March 2014 quarter, up 18% q/q from the 26.7Mt shipped in the December quarter.

If our estimate for FMG is correct, we still believe it is difficult for FMG to achieve its guidance of 127Mt for FY 14. We are already below guidance at 125Mt, which would still require shipments of 38Mt in the June 2014 quarter. We believe that the market is already aware that FMG’s guidance is a stretch, and any downgrade to guidance is unlikely to materially impact the share price in our view.

C1 costs during the December 2013 quarter were US$32.99/wmt, in line with the prior quarter. We expect the June 2014 half C1 cost to average ~US$36/wmt, an increase reflecting comments by FMG that costs would rise in H2 FY 14 to reflect the ramp up of Kings and wet weather.

On realised price, we forecast a fall to ~US$108/dmt cfr from US$125/t cfr in the December 2013 quarter, in line with the fall in the benchmark iron ore price from US$134/dmt to US$120/dmt.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.