So predictable. All commodity cycles work this way:
Rio in effect conceded on Friday that the cost of exporting iron ore from Western Australia this year would be about 5 per cent higher than previously expected.
The rising cost was implied when Rio retained its promise to keep unit costs between $US19.50 and $US21 per tonne, but changed its assumption for the value of the Australian dollar this year from an average of US75¢ to US71¢.
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A 5 per cent decline in the Australian dollar should notionally reduce the US denominated cost of exporting Australian iron ore because the wages paid to Rio’s Australian workforce are in Australian dollars.
But Rio did not lower its unit costs in lockstep with its change to foreign exchange guidance; a move that is tantamount to raising unit cost guidance.
Guidance for volumes is unchanged:
It’s going to have to ship a lot more iron ore in H2 to meet these targets and it can with new mines!
First half shipments of 151.4 million tonnes (Rio Tinto share 126.8 million tonnes) were 2% lower than the first half of 2021 due to skilled labour supply constraints, COVID-19 disruptions, first quarter delays of mine replacement projects and significantly higher than average rainfall in May. We are currently experiencing elevated levels of unplanned absences at our Pilbara operations due to COVID-19 case spikes in Western Australia.
We produced 150.3 million tonnes (Rio Tinto share 126.1 million tonnes) in the first half, 1% lower than the corresponding period of 2021. While significantly higher than average rainfall in May impacted mine production, continued focus on mine pit health and commissioning of Gudai-Darri supported a stronger second quarter.
Gudai-Darri delivered first ore from the main plant in June. As Gudai-Darri continues to ramp-up, we expect increased production volumes and improved product mix in the second half. Full year shipments guidance remains unchanged at 320 to 335 million tonnes.
Iron ore is in all sorts of trouble in H2.