Shares of minerals and iron ore giant Rio Tinto Ltd [ASX:RIO] have fallen 4.68% in London overnight, with shares trading on the ASX continuing the trend.
In an update released to the ASX this morning, Rio announced it had been expecting mine operation challenges, largely centred in the Greater Brockman hub in the Pilbara region. This resulted in a higher proportion of lower grade products, partly to protect the quality of the flagship Pilbara Blend.
In light of the challenges, Rio has been forced to review mining plans, which have resulted in the guidance of Pilbara shipments for 2019 being revised to between 320 and 330 million tonnes.
Previous guidance had previously been outlined between 333 and 343 million tonnes. How the change in volume guidance will impact unit costs will be updated in the company’s second quarter operations review, due 16 July 2019.
What’s next for Rio?
The good news for Rio is that, despite their lowered guidance, iron ore prices are at five-year highs. Prices have risen around 8% over the month of June and over 50% this calendar year.
Australia’s top export reached US$110.20 on SPGlobal’s iron ore index (IODEX), the highest in five years dating back April 2014.
The market has been in a buying frenzy over concerns of supply issues. In May, iron ore inventories fell by 2.4 to 133.6 million tonnes, while China’s services sector grew at its second fastest rate since May 2012.
This includes its construction industry, aided by a move by Chinese regulators to reduce the reserve requirement ratio (RRR) for small and medium lenders.
Trade tensions are also likely to impact the demand for iron ore over the coming months. The US has threatened another US$300 billion worth of tariffs on Chinese goods if the two countries cannot reach a trade agreement. However, there are positive signs, with officials to resume talks before the G20 summit.
For Money Morning
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