Daily iron ore price update (why RIO is bearish)

The ferrous complex remained stalled on July 28, 2021 with spot and paper stuck while steel is still strong:

In news, it’s all about RIO’s record first half report which beat consensus slightly. But, it is still bearish owing to two factors, First, new supply:

Mining has commenced at the $2.6 billion Gudai-Darri replacement iron ore mine in Western Australia, with more than nine million cubic metres of pre-stripping completed in June. Despite labour shortages, first ore in the crusher is expected in 2021, although commissioning is later than originally planned. The project is expected to ramp up in early 2022, consistent with previous guidance, and reach full capacity in 2023. The first phase of this new hub, which will be our most technologically advanced mine, connecting up with our autonomous rail network, will have a 43 Mt annual capacity, underpinning production of the Pilbara Blend™.

Second, the production outlook:

RIO produced 152mt in H1 so to reach its guidance it will need to accelerate its production run rate by around 50mt annualised in H2. Even allowing for misses, it’s a lot more supply.

From there, RIO can keeping adding volumes alongside FMG’s new mines. The Office of the Chief Economist sees Aussie production up 100mt over the next two years, much of it 2022:

This seems overly aggressive to me. But it does underline that we are steadily passing through the peak of the shortage and price phase of the cycle to the output and market share phase when earnings fall away fast.

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