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A couple of weeks ago, the market picked up on a RIO notification to its customers of a product specifications revision, featuring an iron content drop + Si-Al-P lifts. Since then, the ‘degradation’ of Australian iron ore exports has become a popular media theme. Time for some context…
Rio Tinto plc
In a nutshell: . NICKEL CHINA: SMM Outlook - A less than rosy picture . AURUBIS (-): Difficult smelting outlook remains Daily Prices as of May 13th / PRICE MOVERS MACRO/COMMODITY WRAP: Base metals trading higher on the SHFE this morning following yesterday''s slightly lower-than-expected US CPI reading (+2.3% y/y); copper +0.5%, aluminium +0.9%, nickel +1.1%, zinc +1.1%. Iron ore futures (+2% in Singapore) hit a six-week high as trade tensions easing has spurred some optimism in the steelmaking ingredient. The Guinean Prime Minister sees Rio Tinto''s (+) Simandou iron ore JV project shipping first iron ore in November, a month earlier than previously expected. Gold (USD 3,234/oz) in the red for the second time in three days as cooling trade tensions continues to reduce the bid for safe haven assets. Macro Data this week: Eurozone 1Q25 GDP (seasonally adjusted, consensus +1.2% y/y), US initial jobless claims (prev 228k) and US Industrial Production (consensus +0.2% m/m) tomorrow. China Macro this week: China credit data due tomorrow with aggregate financing (cons. 1,260bn yuan) and New RMB loans (cons. 764 bn) / Source: Bloomberg, WIND NEWSFLOW NICKEL CHINA: SMM Outlook - A less than rosy picture On the supply side, Indonesian rainfall eased in April compared to a very wet March, boosting nickel ore supply. However, demand was negatively impacted by Trump''s reciprocal tariff policy released in early April. The overall supply of high-grade NPI is expected to continue with stainless steel mills adopting a wait-and-see attitude to procurement. Refined nickel production is expected to decrease -3% m/m in March but increase +33% y/y, impacted by production cuts of high-grade nickel matte and mixed hydroxide precipitate in Indonesia. On the demand side, negative feedback from the stainless steel industry continues to grow, with mills margins weakening and production schedules declining. While some form of balance could emerge in May for high-grade NPI,...
RIO ANTO NDA
In a nutshell: . CHINA INFLATION: Third month of deflation, . RIO TINTO (+) / BHP (=): Resolution roadblock . SOUTH32 (=): CEO Succession Daily Prices as of May 9th / PRICE MOVERS MACRO/COMMODITY WRAP: After market open, the US and China agreed to lower tariffs on eachother''s products for a 90-day period. The US will reduce levies from 145% to 30% and China will reduce from 125% to 10%. It follows meetings over the weekend and is a material de-escalation of the tariff war. Markets have logically responded positively with diversified miners up mid-single digit % while gold''s selloff this morning is continuing given the reduced bid for save haven assets. Copper rising alongside most other industrial metals given progress on trade talks. Spot copper TCRCs fell another USD 2/t w/w as participants returned from China''s Labour Day holiday. Gold (USD 3,225/oz) trading lower this morning as progress in US-China trade talks impacts safe haven demand. Macro Data this week: US CPI (consensus +2.4% y/y) tomorrow, Eurozone 1Q25 GDP (sa, consensus +1.2% y/y), US initial jobless claims (prev 228k) and US Industrial Production (consensus +0.2% m/m) on Thursday. China Macro this week: China credit data due on Thursday with Aggregate financing (cons. 1,260bn yuan) and New RMB loans (cons. 764 bn) / Source: Bloomberg, WIND NEWSFLOW CHINA INFLATION: Third month of deflation China''s CPI declined -0.1% y/y in April, the same pace as March and in-line with consensus. Factor deflation continued for a 31st month with PPI recording a decline of -2.7%. This is a small headwind for China and mining exposure, in our opinion, as additional stimulus is expected and the April print is still showing a weaker economy. RIO TINTO (+) / BHP (=): Resolution roadblock A US judge on Friday temporarily blocked the Trump administration''s transfer of land to Rio Tinto and BHP for the Resolution copper project. The long -running dispute now has another curveball thrown at its development...
RIO BHP S32
Following 1Q25 production reports, we update our models for Antofagasta (-) and Rio Tinto (+). As expected, neither changed their 2025 guidance across production or cash costs. Detailed estimate revisions can be found overleaf. Antofagasta (-): Provisional pricing tailwinds drive 2025 earnings upgrades Copper production in 1Q25 of 155kt declined c25% q/q, as expected given scheduled maintenance, grade decline and the nationwide power outage in February. Mgmt remain confident in a resolution to the final stages of the EIA for Zaldivar which would avoid any disruption from May onwards. As expected, there were no changes to 2025 guidance. Please see a more detailed review of 1Q25 production here. Underlying estimate revisions (figure 1) are mostly minor, though we do increase our 2025 EBITDA forecast by +6% as we integrate the USD 164m provisional pricing benefits from 1Q25 which was the reason ANTO was able to report a realised price of USD 4.69/lb, an 11% premium to the average LME price of USD 4.24/lb during the quarter. We modestly increase our TP to 1,200p (prev 1,180p) and reiterate our Underperform on valuation grounds and weak FCF generation through 2026. Rio Tinto (+): Better-than-expected start to copper after laggard performance in 2024 1Q25 was characterised by a slower start in Pilbara iron ore shipments, given wet weather, and better-than-expected performance in copper following a lagging year of performance in 2024. SP10 volumes continue to increase with its mix representing 29% of shipments in 1Q25 vs 25% in 4Q24. The product strategy review remains ongoing, though we do not yet have an estimated timeline for when its conclusions will be shared with the market. For a more detailed review of 1Q25 production results, please see our note here. Estimate revisions are not material (figure 2), with our EBITDA forecast revisions 1%. We reiterate our 5,550p TP (unch) and Outperform rating on a cheap discounted iron ore price in shares,...
Rio Tinto plc Antofagasta plc
In a nutshell: . CHINA MACRO: March economic activity beat across the board . CHINA HOUSING: Activity still in decline but showing signs of improvement . Results: . RIO TINTO (+): 1Q25 production first take - slower start in iron ore, copper a positive . ANTOFAGASTA (-): . VALE (=): 1Q25 production first take - weak start to the year in iron ore Daily Prices as of April 15th / PRICE MOVERS . MACRO/COMMODITY WRAP: China''s economy showed surprising strength in the first quarter with GDP growing +5.4% y/y amid a sharp uptick in March activities. Industrial production (+7.7% y/y), Retail sales (+5.9% y/y), and FAI (+4.2% y/y) all accelerated and beat expectations. However, the outlook is clouded by the trade war with the US, asking for fresh stimulus. Policymakers could announce more policy support during the upcoming April Politburo meeting. Meanwhile, China housing activities were still contracting despite sign of improvements with sales (-1.6% y/y), completions (-11.7% y/y) and new starts (-18.7% y/y). Trump has expanded his Section 232 trade probe into the need for tariffs on critical minerals, something signalled to be likely in the prior days. Under law, the Commerce secretary will need to deliver its results within 270 days. The administration itself has acknowledged its import reliance with on at least 15 critical minerals and 70% of its rare earths coming from China. . Base metals mostly stable this morning on the SHFE; zinc -0.8%, copper -0.2%, aluminium -0.1%, nickel +0.4%. Iron ore futures in Singapore off their lows but still trading -1.3% weaker this morning. Chinese crude steel production increased +4.6% y/y in March as iron ore and coking coal price eased, despite Beijing''s efforts to reduce output levels. Gold (USD 3,296/oz) hits another record high as Trump''s expanding trade investigations has increased the bid for safe haven assets. . Macro data this week: Eurozone CPI (consensus +2.2% y/y), US Retail Sales (consensus +1.4% m/m)...
RIO ANTO VALE
What happened? RIO''s Pilbara iron ore shipments fell short (-2%) of consensus in a quarter impacted by weather. However, SP10 volumes continue to climb (29% in 1Q25 vs 25% in 4Q24), weighing on price realisation vs the benchmark, as the product strategy review remains ongoing. Copper beat estimates, following a year of lagging performance with Oyu Tolgoi delivering a record quarter in March. There is no call associated with the production release. 2Q25 production results will be released on 16 July. BNPP Exane View: RIO reported 1Q25 Pilbara iron ore shipments (100% basis) of 70.7Mt, -2% vs Bloomberg consensus but +9% vs our more cautious estimate for the weather-impacted quarter. While SP10 volumes (lump + fines) declined marginally q/q (-3%) its contribution to the mix increased again to 29% vs 25% in 4Q24. The product strategy review remains ongoing with a yet to be determined timeline for its completion. IOC missed expectations again with 2.3Mt of production -12% vs both BNPPE and consensus. Following a year of relative lagging performance in copper, 1Q25 consolidated volumes of 210kt were a positive surprise with a +9% and +11% beat vs consensus and BNPPE. Oyu Tolgoi achieved a record monthly production in March. Escondida increased concentrate production +24% y/y due to higher ore grade feed from a change in mine sequencing. Bauxite had a record first quarter of 15.0Mt, +6% and +12% vs consensus and BNPPE. Production of alumina (1.92Mt) and aluminium (0.83Mt) were largely in-line with expectations. Lithium, which is not currently picked up in consensus nor guided to, was 6kt in the quarter since the completion of the Arcadium acquisition. Production guidance for 2025 was reiterated across its main metals but Pilbara iron ore shipments are now expected to be at the lower-end of the 323-338Mt range. At 2H24 results, RIO quantified the weather related impacted being 13Mt in 1Q25 of which c50% were expected to be mitigated over the remainder of...
In a nutshell: . ANTOFAGASTA (-): 1Q25 production preview - ticking down from a very strong end of year . VALE (=): 1Q25 production preview - seasonally weaker quarter Daily Prices as of April 14th / PRICE MOVERS . MACRO/COMMODITY WRAP: Tariffs again remain a dominant theme this morning with Trump''s administration initiating a trade probe into semiconductor and pharmaceutical imports. The probes were ordered under Section 232 and under law are expected to deliver results of the investigation within 270 days. Base metals futures mostly lower on the SHFE this morning amidst ongoing uncertainty over US tariffs; zinc -0.7%, copper -0.5%, aluminium -0.4%, nickel +0.6%. The Yangshan copper cathode premium ticked down USD 2/t from last week''s YTD high but has remained supportive through the tariff volatility. Iron ore futures edging higher this morning with the active contract in Singapore +0.4%. Pig iron production in China recorded a slight increase last week. Iron ore shipments from Australia''s Port Hedland increased to 50.7Mt in March vs 37.1Mt in February according to data from Pilbara Ports Authority. Gold (USD 3,227/oz) edged higher to trade just below a record high as US plans to impose more tariffs have stoked more investor uncertainty. . Macro data this week: Eurozone Industrial Production (consensus +0.1% m/m) and US Empire Manufacturing (consensus -10.0) today, Eurozone CPI (consensus +2.2% y/y), US Retail Sales (consensus +1.4% m/m) and US Industrial Production (consensus -0.2% m/m) tomorrow, US Initial Jobless Claims (prev 223k) on Thursday. China data this week: China will report its first quarter GDP this Wednesday (cons. 5.2% y/y) alongside March Industrial production (cons. 5.9% y/y), Retail sales (cons. 4.4% y/y), and FAI (cons. 4.0% y/y). / PREVIEW ANTOFAGASTA (-): 1Q25 production preview - ticking down from a very strong end of year ANTO reports 1Q25 production tomorrow morning at 7am UK time. . We forecast 1Q25 copper production...
In a nutshell: . CHINA TRADE: Export (+12.4% y/y) beat on shipments frontloading. Import (-4.3% y/y) slowed in line with expectations . CHINA CREDIT: March credit data beat amid strong government financing, ST corporate borrowing, and mortgages . RIO TINTO (+): 1Q25 preview - lower iron ore shipments expected . STRATEGY: Is the US economy defying recession fears? . LITHIUM: Quarterly cost curve update: slightly lower cost support level Daily Prices as of April 11th / PRICE MOVERS . MACRO/COMMODITY WRAP: Tariff related drama continues to dominate headlines with Trump pushing back on headlines over the weekend that the President would pause import duties for a range on consumer electronics. Despite this, there is fresh pressure on the dollar, declining -0.4% this morning following a -2.4% decline last week given the escalating trade war with China. . Base metals on the SHFE reacting positively to Trump''s electronics exemption; zinc unch, aluminium +0.3%, copper +1.1%, nickel +1.2%. Spot copper TCRCs continue to decline and hit fresh (negative) records with another USD 2/t decline last week amidst ongoing tightness in the concentrate market. Alcoa (NR) has begun the restart process at its San Ciprian aluminium smelter in Spain, in-line with prior plans. Iron ore benefiting, but less so than base metals, with futures in Singapore +0.5% this morning. Gold (USD 3,245/oz) hit a new record after a 6% gain last week, taking the YTD gain to now 20%, with investors racing to safe haven assets amidst the turmoil from Trump''s tariffs. . Macro data this week: Eurozone Industrial Production (consensus +0.1% m/m) and US Empire Manufacturing (consensus -10.0) tomorrow, Eurozone CPI (consensus +2.2% y/y), US Retail Sales (consensus +1.4% m/m) and US Industrial Production (consensus -0.2% m/m) on Wednesday, US Initial Jobless Claims (prev 223k) on Thursday. China data this week: China will report its first quarter GDP this Wednesday (cons. 5.2% y/y) alongside...
RIO FCX FCX ANTO
In a nutshell: . CHINA AUTOS: NEVs continued to drive growth in March, but export slowed sharply. Daily Prices as of April 10th / PRICE MOVERS . MACRO/COMMODITY WRAP: President Trump acknowledged that his tariffs may cause ''transition problems''. The US dollar extended losses after its biggest plunge in three years while stocks and bonds sold off as a worsening global trade war eroded an already fragile appetite for risk. Meanwhile, President Xi will pay state visits to Vietnam, Malaysia, and Cambodia from April 14 to 18 to strengthen regional cooperation. Base metals traded down on the SHFE this morning amid escalation of US and China tariff disputes: copper -1.1%, aluminium -1.1%, zinc -0.9%, nickel -0.9%. Iron ore futures edged higher on the DCE (+1.0%) amid expectations of further stimulus from China to offset the tariff headwinds. Gold (USD 3,200/oz) reached new record high today driven by demand for haven assets. There is increasing scepticism that trade talks before the next 90-day deadline will be wrapped up in a timely manner. . Macro data this week: U. of Michigan sentiment (cons. 55.0) today, China Credit data is also due from today. / NEWSFLOW CHINA AUTOS - NEVs continued to drive growth in March, but export slowed sharply. Data disclosed by China Association of Automotive Manufacturers (CAAM) showed that March production rose +11.9% y/y to 3.01m units, taking Q1 volume to 7.56m units (+14.5% y/y). March auto sales rose by +8.2% y/y to 2.92m units, taking Q1 sales volume to 7.47m units (+11.2% y/y). NEV production and sales recorded 1.28m (+48.2% y/y) and 1.24m (+40.4% y/y) units in March, taking Q1 volume to 3.18m (+50.4% y/y) and 1.835m (+47.1% y/y) respectively. NEV penetration rate reached 41.2% in Q1 (vs. 40.9% in 2024). Conventional vehicles production fell by -5.3% y/y in March, taking YTD volume down -2.5% y/y. Sales were down -7.5% y/y in March, taking YTD volume down -5.1% y/y. Autos export rose +1.0% y/y to 507k...
RIO AAL ANTO
In a nutshell: . CHINA INFLATION: March CPI (-0.1% y/y) came in line and PPI (-2.5% y/y) missed Daily Prices as of April 09th / PRICE MOVERS . MACRO/COMMODITY WRAP: Trump announced a 90-day pause on higher tariffs, while raising duties on China to 125%. Markets rallied after Trump''s tariff-pause announcement. China''s CPI deflation continued in March at -0.1% y/y but came in line with expectation, indicating lingering weakness in domestic demand. Base metals rebounded on the SHFE this morning following the freeze in US reciprocal tariffs: copper +4.3%, zinc +3.3%. aluminium +2.7%, nickel +1.4%. Iron ore futures traded higher on the DCE (+3.0%) and SGX (+1.7%) on Thursday. Chinese leaders are poised to meet today to discuss the measures on supporting the economy amid trade conflict with the US. Gold (USD 3,120/oz) edged up today driven by demand for haven assets amid confusion over Trump''s tariff agenda. The constant back-and-forth of the US administration''s tariff plan has rocked the market as investors scramble to find direction and certainty. . Coal: Anglo American (+) announced this morning that it''s working with Peabody (NC) toward satisfying remaining customary conditions in agreements required for the deals to divest its steelmaking coal mines in Australia. It''s reported yesterday that Peabody was considering whether the recent fire at the Moranbah North mine qualifies as a ''material adverse change'' under the terms of the agreement. In a separate news, Drummond - which produces high-grade thermal coal in Colombia - will reportedly cut production because of low prices. It produced c30mt in 2024 and reportedly expects to produce 11-16mt in 2025. The volume cut accounts for c5% of seaborne 6,000 kcal/kg thermal coal market (around 275-300mt). . Macro data this week: US CPI (cons. +2.6% y/y) today, U. of Michigan sentiment (cons. 55.0) tomorrow, China Credit data is also due tomorrow. / NEWSFLOW CHINA INFLATION - March CPI (-0.1% y/y) came...
In a nutshell: . NICKEL CHINA: SMM Outlook - demand and cost support expected for NPI prices in April Daily Prices as of April 07th / PRICE MOVERS . MACRO/COMMODITY WRAP: China vowed to ''fight to the end'' after Trump added a new threat to put an additional 50% levy on Chinese imports. Chinese President Xi has called for strengthened efforts to ''fully unleash'' the country''s consumption potential to spur growth amid tariff war with the US. Chinese State Funds also started to buy local stocks to support the market. Iron ore futures dropped on the DCE (-3.5%) and SGX (-3.0%) on Tuesday as market confidence took a hit amid the growing standoff between the world''s two largest economies. In its latest quarterly outlook, the Australian Department of Industry, Science and Resources reaffirmed its bearish forecast for iron ore, projecting the benchmark iron ore price to average USD85/t in 2025 and fall further to USD69/t by 2030. Gold (USD 3,010/oz) recovered today after edging lower in early Asian trade amid a more cautious near-term outlook. Base metals mixed performance on the SHFE this morning; nickel +1.0%, aluminium +0.4%, copper -0.3%, zinc -1.1%. The drastic plunge in copper prices has lured purchases from Chinese fabricators to tap lower prices, as Yangshan copper premium rose to 15-month high yesterday. China Copper premiums / Source: Bloomberg . Macro data this week: FOMC meeting minutes on Wednesday, China Inflation on Thursday with CPI (cons. -0.1% y/y) and PPI (cons. -2.2% y/y), US CPI (cons. +2.6% y/y) also on Thursday, U. of Michigan sentiment (cons. 55.0) due on Friday, China Credit data is also due from Friday. / . NICKEL CHINA: SMM Outlook - demand and cost support expected for NPI prices in April. On the supply side, medium and high-grade nickel ore resources in Indonesia were tight due to heavy rainfall in March, leading to low production levels at smelters. Indonesia''s NPI production is expected to decrease by -0.4% m/m to 140.9kt...
In a nutshell: . STRATEGY: Preparing For Liberation Day . RIO TINTO (+): Early discussions to develop DRC lithium deposit . US PLATE: Nucor (+) hikes plate offers by +USD 40/st . STEEL CHINA: China steel industry''s profitability turns negative in January and February . GANFENG LITHIUM GROUP (-) / GANFENG LITHIUM GROUP - H (=) Post-2024 result call: focus on cost control and battery business in 2025 . CHINA PMI: March NBS manufacturing PMI (50.5) and non-manufacturing (50.8) beat expectations Daily Prices as of March 28th / PRICE MOVERS . MACRO/COMMODITY WRAP: China factory activities continued to rebound with NBS Manufacturing PMI (50.5) accelerating in March. Non-manufacturing PMI (50.8) also gained momentum as Construction (53.4) activities gained pace in March. . Base metals weak on the SHFE this morning ahead of ''Liberation Day'' on Wednesday; aluminium -0.3%, copper -0.7%, nickel -1.6%, zinc -1.8%. Spot copper TCRCs made another record low last week with several smelters buyers reportedly in the mid negative USD 20/t range. Iron ore futures declining -0.9% this morning in Singapore. China''s second-largest steelmaker, Angang Steel (NC) posted a nearly USD 1bn annual loss on softening demand. Gold (USD 3,118/oz) crosses the USD 3,100/oz level for the first time in history amid ongoing concerns of a global trade war. Gold is up 18% YTD and has made 15 fresh all-time highs during that time with the rally also being aided by central bank buying and geopolitical uncertainty. . Macro data this week: Eurozone CPI (consensus +2.2% y/y) and US ISM Manufacturing Index (consensus 49.8) tomorrow, US Factory Orders (consensus +0.5% m/m) on Wednesday, US Nonfarm Payrolls (consensus 135k) on Friday. From our strategy team: Preparing For Liberation Day With reciprocal tariffs in focus this week, we lay out our base case plus an adverse scenario. If the base case of an increase in the US effective tariff rate rising to c. 14%, with a 10-12.5% tariff rate...
RIO SSABA SSABB NUE NUE
What happened? On day 2 of our TIME conference, we hosted Anglo American''s (+) Head of Strategy, Aurubis'' (=) CFO, First Quantum''s (=) CFO, Rio Tinto''s (+) CFO and Teck Resources (NC) CEO. On day 1 we hosted the respective CFO''s from Barrick (=), Norsk Hydro (=) and South32 (-) and you can find feedback here. BNPP Exane View: Anglo American - Achievement of the restructuring pathway remains Anglo''s #1 priority. Valuations for assets exited so far as part of that process have exceeded market expectations. Next up is the demerger of Amplats which remains on track for June. De Beers, and the difficulty in the diamonds market makes that a bit more of a protracted event with it still being a dual track process (IPO vs sale). January was a relatively weak start to 2025 for Collahuasi, exhibited via the Cochilco data, as it worked through lower grades stockpiles. The two adjacency deals they have announced over the last few quarters (Serpentina + Andina) have been well received for unlocking some real value creation. The next logical combination would be something between Collahuasi and QB2 given proximity (5km) and ability to optimise higher grade ore and excess processing capacity. 2027 is the likely deadline for something to be announced, before Anglo would need to submit the EIA for the 4th processing line at Collahuasi. Aurubis - The company has limited exposure to spot TCs as their pricing strategy involves 80% of contracts linked to benchmarks. However, copper TCs is expected to remain lower for longer which will eventually bite into their earnings. Meanwhile, the sulphuric acid market is performing well amid improving downstream demand, which partially offsets the headwinds from TCs. The company is expected to take advantage of being the first mover in the US recycling market which is underserviced with few competitors at the same scale. The company is focused on strategically enlarging their US presence with the Richmond plant ramping up and...
RIO AAL NDA FM
What happened? We hosted Rio Tinto''s CFO Peter Cunningham for a fireside chat on day 2 of our TIME conference. Key topics included recent MandA, the iron ore and copper outlook and the portfolio. BNPP Exane View: MandA - The acquisition has only been closed for a couple weeks and now the integration process begins. Both Rincon and Arcadium have DLE technology which will complement each other as well as bring strong commercial capabilities into lithium from the transaction. We expect RIO will take its time to decide what assets they may speed up or slow down and are not looking to make another acquisition in the lithium market. The demand outlook for China is still impacted by weakness in the property market but offset by strength in energy transition and more stable in industrial and consumer sectors. Mr Cunningham was just in India last week and remains optimistic on the country''s multi-decade outlook for metals demand. With Mitsui''s recent equity investment in Rhodes Ridge, RIO remains very bullish on the future of this potential high-grade, long-life asset. SP10 volumes have continued to rise through 2024 and while a product review is underway in iron ore, they are still reticent to put a timeline on when those finding will be shared with the market. On IOC the focus remains getting it back to nameplate capacity and RIO is confident the struggles to do so have been rather a lack of execution than needing a significant capital investment. Progress at Oyu Tolgoi progressed well during 2024 and is on track for a c50% increase in copper production this year. With Kennecott being just 1 of 2 smelters in the US, it is able to capture the current COMEX (over LME) premium. Resolution continues to await a Supreme Court decision but RIO remain optimistic this asset would fit the US'' desire for more domestic copper production and ultimately add to their long-term production growth. Having, as discussed above, just integrated more lithium into their...
In a nutshell: . METALS and MINING - Mining Momentum Monitor . BHP GROUP (=) - Roundtable roundup . BARRICK (=) NEWMONT (+) - Precious prices holding up but remaining selective amongst the equities . STEEL EU - EU to retaliate following return of US steel/alu tariffs . STEEL - EU safeguards likely to disappoint . CHINA AUTOS - NEVs and exports continued to drive growth in February Daily Prices as of March 11th / PRICE MOVERS . MACRO/COMMODITY WRAP: Trump''s steel and aluminium tariffs take effect today, while the EU launched countermeasures on Wednesday against the US metals tariffs, with plans to impose its own duties on EUR 26bn worth of American goods. Ukraine accepted a US proposal for a 30-day truce with Russia as part of a deal with the Trump administration to lift its freeze on military aid and intelligence for Kyiv. Base metals traded mostly higher on SHFE this morning; copper +0.9%, aluminium +0.6%, zinc +0.4%, nickel -0.6%. China issued more licenses to copper smelters allowing them to export metal tax-free, which will aid local producers and increase overseas sales. Iron ore futures retreated on the DCE (-0.3%) and SGX (-0.5%) today as tariff uncertainty led to concerns of recession risk. Gold (2,910/oz) steadied this morning ahead of the US CPI print which could help to gauge the Fed''s interest rate path. . Macro data this week: US CPI (consensus +2.9% y/y) today, Eurozone Industrial Production (consensus +0.6% m/m) tomorrow, University of Michigan Sentiment (consensus 65.0) on Friday. . STEEL EU - EU to retaliate following return of US steel/alu tariffs: In response to US tariffs on EU steel and aluminum imports (entering into force March 12), the European Commission today announced the implementation of countermeasures on US imports into the EU. The EU countermeasures can affect EUR 26b of US exports. ''As the US are applying tariffs worth 28 billion dollars, we are responding with countermeasures worth EUR26...
RIO OUT1V BHP VOE VOE AAL NEM NEM FCX FCX ANTO B VALE APAM
In a nutshell: . RIO TINTO (+): Roundtable roundup . CHINA TRADE: Both Exports (+2.3% y/y) and Imports (-8.4% y/y) slowed in the first two months and missed expectations . STRATEGY: Europe: Fiscal Fuel . EU AUTO: Sales increase MoM, down YoY . STEEL CHINA: Steel exports run-rate contracts MoM but still up YoY . STEEL: Prices and Margins Weekly Recap - US HRC increase, EU and China prices flat . NICKEL CHINA: SMM March Outlook - high-grade NPI prices expected to rise amid demand recovery Daily Prices as of March 6th / PRICE MOVERS . MACRO/COMMODITY WRAP: Trump signed an executive order pausing tariffs on Canadian and Mexican goods compliant with the USMCA trade deal until April 2nd. Bloomberg reports that this would cover 62% of Canadian goods and c50% of Mexican products. Another large turn in strategy with more volatility for markets. With the weakness in US markets over the past week plus, this could be interpreted as a positive for the narrative that Trump is reacting to the stock market. At least in the near-term, this should be read as dollar negative. Base metals trading mixed this morning on the SHFE; zinc -0.2%, aluminium -0.1%, copper unch, nickel +1.3%. A 6.2 magnitude earthquake struck Antofagasta, Chile last night. There''s yet to be any announcement of disruption from nearby copper mines. Iron ore futures edging higher this morning (+0.1%) despite China''s economic planning agency saying it would mandate steel production cuts. CISA mill inventory levels declined -2.5% in late February (vs mid-February) while daily crude steel production increased +5% over the comparable period. Gold (2,913/oz) looks set for a weekly gain (1%) as safe haven assets have been in demand this week with more tariff related volatility. . Macro data this week: Eurozone 4Q24 GDP (consensus +0.9% y/y) and US nonfarm payrolls (consensus 155k) this afternoon. From our strategy team: Europe: Fiscal Fuel Following up from our Wednesday AM report, we have had seismic...
RIO VOE VOE MT NUE NUE SZG CLF CLF
What happened? We attended a sellside roundtable with RIO''s CFO Peter Cunningham. Key topics included tariffs, Pilbara volume outlook, the newly expanded lithium business and capital allocation. BNPP Exane View: Regarding Arcadium there was, understandably, little new information ready to be shared on day 1 of it officially being in the portfolio. It will take some time for RIO to digest all the new information and assets and convey their plan for how fast or slow to take the growth profile of the assets. The consensus remains that the lithium market will remain oversupplied for multiple years, but this was an acquisition really made for 2030 and beyond rather than near-term payback. The controversial potential equity raise which has been in the market over the last few weeks has in our mind been put to rest. It was first broached as a potential way to part finance the Arcadium acquisition but the release this morning following the closure of the transaction notes financing by ''drawing on its existing bridge loan facility, which it plans to replace with long-term debt financing.'' We view this as a strong signal that an equity raise is not being actively considered at this time. There was a commitment to holding the USD 10-11bn per annum capex profile and that there was nothing they''re currently seeing which would likely see it above that range sustainably. SP10 volumes will indeed remain elevated in the Pilbara mix shipment until the full slate of replacement projects come online. While the Brockman mine extension was announced today and is expected to produce first ore in 2027 vs prior expectations in 2028, it alone wouldn''t alleviate the higher mix shift towards the lower grade SP10 product. RIO is undergoing a product strategy review in iron ore but there is no timeline for when it would be completed and communicated to the market. We would expect its timeline to be measured in quarters rather than months. Trump tariffs bring plenty of...
In a nutshell: . STEEL: EU steel equities: what''s priced in? . SALZGITTER (-): Hot strip mill fire to tighten EU flat-rolled market . STEEL INDIA: ArcelorMittal India JV considers cutting production due to coke import restrictions . GLOBAL TRADE: Mexico initiates anti-dumping investigation into HRC imports from China and Vietnam . COPPER CHINA: SMM outlook - copper cathode production is expected to rose +4.0% m/m to 1.1mt in March . RIO TINTO (+): Closing of Arcadium and development of Brockman Daily prices as of March 5th / PRICE MOVERS . MACRO/COMMODITY WRAP: Another morning and another movement in tariffs as Trump has delayed newly imposed automakers levies on Mexico and Canada by a month. Given the recent weak macro prints coming from the US and growing concern of a slowing economy and rising inflation, the nonfarm payrolls figure tomorrow will be important to see if it flashes more strain and stress being put on the economy. Base metals mostly higher this morning this morning in trading on the SHFE; nickel -0.4%, copper +1.2%, aluminium +1.3%, zinc +1.6%. Mercuria (private) and Glencore (+) renewed a deal to buy copper from the DRC''s state miner according to Bloomberg. The two trading houses were allocated 50% (Mercuria) and 25% (Glencore) if CMOC''s (NR) Tenke Fungurume mine with the final 25% yet to be allocated. These are the same allocations as last year with Trafigura (private) getting the final 25% in 2024. The Tenke mine sold 409kt of copper and 24kt of cobalt last year. Iron ore futures trading just above USD 100/t (+0.5%) this morning in Singapore after ending 1% lower on Wednesday following announcements from the Chinese government that it would mandate (unquantified) steel production cuts. Gold (2,921/oz) steady this morning as the tariff turmoil continues to support its safe haven demand. . Macro data this week: US initial jobless claims (prev 242k) today, Eurozone 4Q24 GDP (consensus +0.9% y/y) and US nonfarm payrolls...
RIO MT SZG
In a nutshell: . CHINA PMI - February NBS manufacturing PMI (50.2) beat, non-manufacturing (50.4) came in line . STEEL MARGINS - BF spot EBITDA/t surge in February . STEEL US - Algoma Steel forced to temporarily shut down blast furnace . STRATEGY - US Consumer Health Check Daily prices as of February 28th / PRICE MOVERS . MACRO/COMMODITY WRAP: The week starts off with a focus on geopolitics as European leaders showed support for Ukraine following an Oval office clash on Friday between Zelenskiy and Trump. UK Prime Minister Keir Starmer hosted an emergency security summit on Sunday with Britian calling for a ''coalition of willing'' countries to secure Ukraine with a plan to ''stop the fighting.'' Copper trading higher (+0.6%) in early LME trading despite the threat of tariffs overhanging the market. Iron ore futures declined for a sixth straight session as rising trade tensions between the US and China outweighed improved manufacturing data from China. Rio Tinto (+) announced it has resumed shipping at its East Intercourse Island (EII) facility at Dampier Port following the impacts of Tropical Cyclone Sean. Dumper operations at EII resumed last week and the first ship was loaded yesterday. 2024 iron ore shipment guidance remains 323-338Mt though RIO notes that mitigation plans are in place to offset approximately half of the 13Mt lost from the four cyclones YTD. That language has not changed since release of its 2H24 results two weeks ago. Gold (2,862/oz) gaining this morning after a sharp correction last week with investors eyeing tariffs set to be imposed on Canada and Mexico. Last week was the first weekly loss for gold in 2025. . Macro data this week: Eurozone CPI (consensus +2.3% y/y) and US ISM manufacturing (consensus 50.5), US initial jobless claims (prev 242k) on Thursday, Eurozone 4Q24 GDP (consensus +0.9% y/y) and US nonfarm payrolls (consensus 155k) on Friday. . STEEL MARGINS - BF spot EBITDA/t surge in February: With EU HRC up 10% YTD...
Rio Tinto plc ArcelorMittal SA
In a nutshell: . RIO TINTO (+) - Consistency in divi payouts, not yet seeing unit cost deflation . ANGLO AMERICAN (+) - Extension of De Beers and Botswana diamond partnership . STEEL EU - Commission launches dialogue with stakeholders in preparation of Steel Action Plan this spring . ALUMINUM - US producers divided on tariffs impact Daily Prices as of February 25th / PRICE MOVERS . MACRO/COMMODITY WRAP: Copper jumped as much as +5% late yesterday as Trump order the US Commerce Department to examine possible import tariffs on the red metal. Traders YTD have already been betting on dislocations with the Comex premium (over LME) jumping to nearly USD 900/t. The investigation will be carried out under Section 232 of the Trade Expansion Act which gives broad authority to impose restrictions on national security grounds. Chile suffered a huge blackout that left 8 million homes without electricity and shut down major copper mines, the worst incident in 15 years. The government was hopeful to have all services working again overnight. Assuming this is contained to a one-day event this short and sharp event would probably impact national production by c10kt. Iron ore futures largely flat this morning with the most active contract in Singapore just -0.1%. Chinese steelmakers spiked over speculation the government may step up measured to help the industry, potentially mandating output cuts. Gold (2,910/oz) edging slightly higher this morning after a 1% decline yesterday with traders booking profits after the record-breaking run. Net inflows into bullion-backed ETFs last week were the strongest since 2022. . Macro data this week: Eurozone Industrial Confidence (cons -12.0) and US 4Q24 GDP (cons +2.3%) tomorrow, US PCE Price Index for January (cons +2.5% y/y) . ALUMINUM - US producers divided on tariffs impact: Alcoa (NC) CEO William Oplinger has warned that President Trump''s proposed tariffs on aluminum imports could put 100,000 US industry jobs at risk....
2H24 - strong payout but the rest underwhelmed As hinted at in the December investor seminar, RIO held to its pattern of paying out at the top-end of the 40-60% through-cycle range. We wouldn''t expect them to break from this trend which drives our forecast c6% divi yield for the next several years. Unit cost guidance for both iron ore and copper disappointed as it pointed to a y/y increase in the Pilbara (iron ore) and flat development in Copper vs expectations for a material decrease. Please see our flash note here for a more detailed breakdown of 2H24 results. Estimate revisions Following results, we cut EBITDA by -7%/-5%/-1% in 2025/2026/2027 respectively, driven by the iron ore and copper divisions (revisions table overleaf). For the former, we have integrated RIO''s comment that 1Q25 iron ore shipments have been disrupted by c13Mt as a result of weather and now forecast a quarterly shipment figure of 65Mt (100% basis, vs 1Q24: 78Mt). While RIO has maintained its full-year shipment guidance of 323-338Mt, we''ve now taken down our estimate to be in the lower end of the range (325Mt) vs prior at the mid-point. We''ve also assumed its SP10 volume share maintained 20% for the next several years (2023 23%, prior 5-year average 11%) weighing on averaged realised prices. For copper, we cut EBITDA forecasts by -18%, -14% and -8% over 2025-2027. This was driven by two factors - unit cost guidance coming in ahead of expectations and being slightly too high (above guidance) for the newly defined consolidated copper volumes, which we have corrected for. With group earning forecasts falling, we saw a modest decrease in our TP (-2%) to 5,950p which continues to be derived via an equal weighting of DCF and ROCE/WACC. Reiterate Outperform.
In a nutshell: . RIO TINTO (+): Potential strategic equity placement still on the table . GLOBAL TRADE: Chinese steelmakers lose lucrative Vietnam HRC market after new tariffs . THYSSENKRUPP (NC): Closure of HKM nears after potential buyer abandons talks . STEEL US: Cleveland-Cliffs hikes HRC offers to USD 900/st . STEEL CHINA: Domestic rebar prices rise amid positive policy signals . STRATEGY: German Election - A Two-Party Majority Daily Prices as of February 21st / PRICE MOVERS . MACRO/COMMODITY WRAP: Base metals were stronger this morning on the SHFE; zinc unch, copper +0.3%, aluminium +0.6%, nickel +0.7%. The freefall in copper concentrates continues as spot TCRCs declined another USD 3-4/t w/w to fresh historical lows. Iron ore futures snapping a four-day winning streak (-0.2% in Singapore) as Vietnam hits China with anti-dumping tariffs on its HRC exports. Gold (2,944/oz) is holding near record levels as the dollar eased and ETF holdings are surging. . Macro data this week: Eurozone CPI (cons +2.5% y/y) today, Eurozone Industrial Confidence (cons -12.0) and US 4Q24 GDP (cons +2.3%) on Thursday, US PCE Price Index for January (cons +2.5% y/y) From our strategy team: German Election - A Two-Party Majority A Market Friendly Outcome: A CDU/CSU and SPD coalition looks likely German elections have yielded a favourable outcome for markets. Firstly, eventual party outcomes were close to opinion polls, and the tail risk of AFD outperforming substantially did not materialise. Secondly, and more importantly, with smaller parties (FDP, BSW) not reaching the 5% threshold, a stronger two-party coalition between the CDU/CSU and the SPD now appears likely. Potentially Lower Taxes, Higher Defence + Energy investment, As detailed in our deep-dive, German election: Continuity with change, a two-party coalition should favour a quick formation of government, plus a quick enactment of policies that have agreement between both parties. In the table below, we...
RIO NUE NUE SZG CLF CLF
In a nutshell: . ANGLO AMERICAN (+) : 2H24 first take - Incremental EBITDA reported a beat, interesting long-term MOU with Codelco . VALE (=) : 4Q24 first take - PandL and FCF miss, new buyback launched . RIO TINTO (+) : 2H24 first take - divi better but disappointing unit cash cost guides . ERAMET (=) : FY24 results in line, 2025 capex and volume guidance lighter . GLENCORE (+) : Serious work being done on a potential relisting . US MandA: Activist moves forward with proxy battle with X . TIANQI LITHIUM (+) / TIANQI LITHIUM - H (+) : Kwinana Refinery Train 1 impairment finalized; in-line with expectation Daily Prices as of February 19th / PRICE MOVERS . MACRO/COMMODITY WRAP: Meeting minutes yesterday shows that Fed officials expressed their readiness to hold interest rates steady amid stubborn inflation and economic policy uncertainty. Trumps says it is possible to reach a fresh trade deal with China, signaling he is open to heading off a brewing trade fight. Base metals traded higher on the SHFE this morning amid a softer USD; copper +0.3%, zinc +0.1%, aluminium +0.5%, nickel +0.6%. Iron ore futures rose again today on the DCE (+2.2%) and SGX (+1.6%). Gold (2,950/oz) climbed to a new record on Thursday as geopolitical tensions boosted demand for safe-haven assets. . Macro data this week: US Initial jobless claims (prev 213k) and Eurozone consumer confidence (consensus -13.9) today, Eurozone Manufacturing PMI (consensus 47.0) and US Manufacturing PMI (prev 51.2) due tomorrow. . US MandA - Activist moves forward with proxy battle with X: Yesterday the activist investor Ancora Holdings (USD 10b AUM, based in Cleveland) hosted a conference call to address their position in proxy fight with US Steel (+). The call was joined by Ancora''s CEO James Chadwick and Selco''s former CEO Alan Kestenbaum. On the call, Ancora reiterated that US Steel should focus on a standalone turnaround rather than a sale. They called for US Steel to abandon the merger with...
RIO AAL X X VALE CLF CLF
What happened? 2H24 EBITDA was a small miss (-4% vs VA consensus) with puts and takes at the divisional level. The final divi of USD 2.25/sh was +9% above consensus. FCF was stronger but ultimately net debt came in above consensus. While we already knew 2025 production and capex guidance, today''s release of iron ore and copper unit cost guidance came in above expectations and will pressure consensus EBITDA. RIO will host a call at 8pm UK time tonight to discuss the results. BNPP Exane View: RIO reported 2H24 underlying EBITDA of USD 11.2bn, -3% and -4% vs Visible Alpha consensus and BNPPE. Relative to consensus, Aluminium was the clear positive stand out with USD 2.1bn of EBITDA, +7% vs consensus. There were also benefits from lower spend in other items and exploration/evaluation. The Copper business was the largest laggard with EBITDA of USD 1.6bn, -18% vs consensus. Iron ore was slightly below expectations (-4%) and Minerals was -35% vs consensus but the nominal delta to the group makes it a much smaller impact. The final divi of USD 2.25/sh was in-line with BNPPE but +9% vs consensus. While RIO has a policy to payout 40-60% of underlying earnings through-cycle, paying out at the top end as it did in 2024 has been its consistent performance for some time. At the investor seminar in December it was hinted at that the divi payout would again be at the top end of the range. Capex ultimately came in slightly below the USD 10bn guide with 2H24 at USD 5.6bn but split expectations (7% less than BNPPE but 4% above consensus'' estimated outflow). FCF of USD 2.7bn was +11% vs consensus and +51% vs our more conservative forecast. However, net debt ultimately came in at USD 5.5bn, -8% below BNPPE but +11% above consensus. 2025 production and capex guidance, as expected, was reiterated. Impacts to the Pilbara in 1Q25 from multiple cyclones has now been quantified (loss of c13Mt) but full year shipment guidance is unchanged. Unit cost guidance for 2025 was...
In a nutshell: . SOUTH32 (-): Fiscal 1H25 - largely in-line quarter, modest tweaks around guidance . BARRICK (=): 4Q24 first take - largely in-line Q4 and 2025 guide, stalemate in Mali and new USD 1bn buyback . NEWMONT (+): Net negative read-x from Barrick''s Q4 and 2025 guide . OUTOKUMPU (-): Results Flash - Q4 in-line, Q1 guidance uncertain with ongoing strikes . SALZGITTER AG (-): Results Flash - Q4 EBITDA beat, FY25 guidance brings downside risk Daily Prices as of February 12th / Source: Bloomberg PRICE MOVERS . MACRO/COMMODITY WRAP: Following a strong jobs report, the US CPI print yesterday came in higher than expected with headline up 0.5% m/m (exp: 0.3%, prev: 0.4%) and core up 0.4% (exp: 0.3%, prev: 0.2%). Fed Chair Powell noted that while the central bank has made significant progress towards taming inflation, there is still more work to be done which suggests rates will remain elevated as he also noted wanting to keep the policy ''restrictive for now.'' Base metals mixed this morning on the SHFE; zinc -0.3%, nickel -0.3%, aluminium -0.1%, copper +0.5%. Iron ore futures edging lower this morning despite Cyclone Zelia intensifying and forcing the closure of several Australian ports which export iron ore from the Pilbara. Rio Tinto (+) press released the port closures and noted it''s too early to judge how long the port and rail operations will be impacted. For now, is 2025 shipment guidance has been reiterated. Gold (2,917/oz) reaching new highs with the dollar fading this morning. . Macro data this week: Eurozone industrial production (cons. -0.2% m/m) today; US retail sales (cons. +0.0% m/m) and US industrial production (cons. +0.3% m/m) tomorrow. China credit data also due tomorrow. / RESULTS Fiscal 1H25 - largely in-line quarter, modest tweaks around guidance TP: 150p Downside: 13% Price: 173p (12 Feb. 25) What happened? South32 delivered a largely in-line quarter with underlying EBITDA of USD1,018m -2% v...
RIO OUT1V S32
In a nutshell: . COPPER CHINA: SMM Outlook - operating rates of copper semis producers expected to rise slightly in February . STEEL US: Weekly production continues to increase . STEEL US: Nucor hikes HRC offer price for third week in a row . STRATEGY: Know Thy Neighbour: AI Bricks and shovels, EU equities, tariff losers, how have investors responded? . VOESTALPINE (=): Guidance at risk (again) - 12 February . Postview: . RIO TINO (+) / BHP (=): Production reports drive near-term earnings downgrades . BOLIDEN (RS): Better-than-expected quarter but FCF to remain under pressure . SSAB (+): A nice surprise Daily Prices as of February 10th / PRICEMOVERS . MACRO/COMMODITY WRAP: Base metals trading mixed this morning on the SHFE; nickel -2.2%, zinc -0.2%, copper -0.2%, aluminium +0.5%. Alumina''s decline has now stretched to -34% from its all-time high in early December, albeit in a fairly orderly way down. Iron ore giving up early gains in futures trading on the Dalian and Singapore exchanges, currently -1%. Port Hedland, the Australian iron ore export hub, started clearing vessels from the port after weather warnings. Gold (2,910/oz) reaching a new record high on skittishness following Trump''s steel and aluminium tariffs. . Macro data this week: US NFIB index (cons. 104.0) today; US CPI (cons. +2.9% y/y) tomorrow; Eurozone industrial production (cons. -0.2% m/m) on Thursday; US retail sales (cons. +0.0% m/m) and US industrial production (cons. +0.3% m/m) on Friday. China credit data also due on Friday. / From our strategy team: AI Bricks and Shovels, EU Equities, Tariff Losers: How Have Investors Responded? 2025 has been marked by three major themes: DeepSeek has upended the AI landscape, EU equities have had their best start in over a decade, and tariff news has been relentless. So, how have investors responded? Our analysis reveals that long EU equities remains anti-consensual, the shift away from AI Bricks and Shovels is still in its infancy, while...
RIO BHP VOE VOE SSABA SSABB NUE NUE BOL BOL
Following calendar Q4 production reports, we update estimates for the two largest global miners. Both see modest earnings downgrades in the current year. We expect BHP to be at the low end of the divi payout range (minimum 50%) vs RIO at the top end of the range (40-60%) for the upcoming announcements. Tables overleaf contain estimate revisions and upcoming earnings estimate comparisons vs consensus for both miners. BHP - February 17 (UK) / 18 (Aus) We forecast fiscal 1H25 underlying EBITDA of USD 12.1bn, -3% vs Visible Alpha consensus. For the two largest divisions, WAIO (iron ore) and copper we are -2% below consensus for each. Our interim divi forecast of USD 0.51/sh is in-line with consensus on both an absolute level and payout ratio. With net debt to remain in the upper half of the USD 5-15bn range (BNPPE USD 11.9bn), we expect the payout ratio to be only marginally above the minimum 50% level, a view shared with consensus. We cut FY25 EBITDA -5%, with more muted changes (c1%) to FY26 and FY27. Drivers of the FY25 cut are operational assumptions across copper, iron ore and coking coal. Reiterate Neutral with TP of 2,130p (prev 2,300p). Rio Tinto - February 19 (UK) / 20 (Aus) We forecast 2H24 underlying EBITDA of USD 11.7bn, +2% vs Visible Alpha consensus. At the divisional level, we are ahead of consensus on copper but behind on iron ore and in-line for aluminium. Our final divi forecast of USD 2.27/sh implies a 64% payout vs underlying earnings (57% for FY24). Our divi forecast is c10% ahead of consensus on higher underlying earnings assumptions as the payout ratio is similar. Results will also include 2025 guidance on Pilbara unit cash costs (BNPPE: USD 22/t, -1% vs consensus) and copper C1 cash costs (BNPPE USD 1/05/lb, -8% vs consensus). Total estimate revisions to our model are relatively muted, with 2024-2026 EBITDA (incl JVs and associates) declining 1-2% through that period. Reiterate Outperform with TP of 6,050p (prev 6,400p).
Rio Tinto plc BHP Group Ltd
In a nutshell: . STEEL US: Punitive countervailing duties slapped on Vietnam in CORE case . CLIMATE: Carbon Markets: Political game changer . US SCRAP: Scrap prices expected to soar in February . US PLATE: NUE (+) hikes plate offers by another +USD 40/st . ArcelorMittal (+): How low can capex go? - 6 February Daily Prices as of February 4th / PRICE MOVERS . MACRO/COMMODITY WRAP: Base metals trading mostly weaker on the SHFE this morning on China''s return from holiday today; zinc -1.2%, nickel -0.4%, copper -0.3%, aluminium unch. The Yangshan copper cathode premium declining USD 3/t on China''s return, back to levels one-month ago. The dollar continues its slide from peak tariff fear early Monday morning, trading -0.1% this morning. Iron ore futures declined this morning (-0.6% in Dalian) amid the trade tensions and China''s services activity expanding at a slower pace in January. This comes despite Rio Tinto (+) noting yesterday that it had begun clearing iron ore ships from ports as two tropical cyclones offshore complicate efforts to repair infrastructure damaged by a cyclone last month. Gold (2,856/oz) hit a fresh all-time high this morning, boosted by safe haven demand from China-US trade war fears as US President Trump yesterday said he is in ''no hurry'' to speak to Chinese President Xi. . Macro data this week: Eurozone HCOB Service (cons. 51.2), US ADP (cons. 155K) and US ISM services (cons. 54.3) today; US Nonfarm Payrolls (cons. 150K) on Friday. . STEEL US - Punitive countervailing duties slapped on Vietnam in CORE case: The US Department of Commerce announced the preliminary countervailing duties (CVD) in the corrosion-resistant steel products (CORE) case. The DoC assigned largely non-material subsidy rates against Brazil (CSN, Usiminas...), Mexico (Ternium...) and Canada (Stelco, Dofasco...), averaging between 1-2%. This does not come as a surprise for those countries which account for 45% of the US HDG import supply. However, Vietnam,...
RIO SSABA SSABB MT X X NUE NUE
In a nutshell: . US TARIFFS - Trump puts on hold 25% tariffs against Canada/Mexico . STEEL US - Nucor hikes HRC offer price for second week in a row . US TARIFFS - Tariff fallout: Sector winners and losers . STEEL US - Weekly production rebounds after falling for two weeks . CLEVELAND-CLIFFS (-): Results Flash - Q4 miss but marks the trough, tariffs ''a great first step'' . NUCOR (+): What to fear? . US AUTO - January sales decrease MoM, inventories up . CAPITAL GOODS: ISM Manufacturing PMI: Strong beat but overshadowed by tariffs Daily Prices as of February 3rd / PRICE MOVERS . MACRO/COMMODITY WRAP: Trump on Monday suspended the proposed 25% tariffs on Mexico and Canada at the last minute, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighbouring countries. But there was no such reprieve for China, and a White House spokesperson said Trump would not be speaking with President Xi until later in the week. Trump warned he might increase tariffs on China further unless Beijing stemmed the flow of fentanyl into the US. Meanwhile, China hits back with tariffs on US goods with levies of 15% for coal and LNG and 10% for crude oil, farm equipment and some autos, starting on Feb. 10. Separately, China''s Commerce Ministry and its Customs Administration said it is imposing export controls on tungsten, tellurium, ruthenium, molybdenum and ruthenium-related items. Base metals trimmed gains on the LME following China''s retaliation on tariffs; copper +0.5%, zinc +0.6%, aluminium -0.2%, nickel -0.6%. Iron ore edged higher (+0.7%) on the SGX today. RIO (+) said on Tuesday it had begun sending ships from Cape Lambert Port and Dampier Port, out to sea, to avoid high sea swells and wave conditions created by Tropical Cyclone Taliah and Tropical Cyclone Vince. Australia''s weather bureau said Tropical Cyclone Taliah was likely to remain a severe tropical cyclone in the coming days, but it was confident it would...
RIO X X NUE NUE CLF CLF
In a nutshell: . FREEPORT-MCMORAN (+): 4Q24 first take - 4Q24 beat, 2025/26 guides to weigh on FCF . SALZGITTER AG (-): Non-binding offer now on the table . APERAM (+): APAM closes the USAP acquisition . STEEL CHINA: Production flat, inventories up WoW . STEEL Prices and Margins Weekly Recap: US HRC flat, EU prices recover, Chinese prices up Daily Prices as of January 23rd / PRICE MOVERS . MACRO/COMMODITY WRAP: Base metals trading mostly stronger on the SHFE this morning; nickel -0.4%, zinc +0.5%, aluminium +0.6%, copper +0.6%. Japanese buyers agreed to a 1Q25 aluminium premium of USD 228/t, +30% q/q and slightly above the recent high of USD 220/t in 4Q21. Iron ore futures set for a weekly gain with Dalian trading +0.7% this morning despite ongoing concerns over tariffs. Chinese factory is expected to expand for a fourth consecutive month in January, according to economists polled by Reuters. Rio Tinto (+) flagging expected weak 1Q25 iron ore shipments following disruptions to its rail operations from cyclone Sean''s record rainfall. A railcar dumper at its East Intercourse Island (EII) port facility, which handled 45Mt of shipments in 2024, experiences severe flooding, and is expected to be out of operation for 3-4 weeks. There''s been no change to the 2025 iron ore guidance. Gold (2,773/oz) rebounds to a 3-month peak, boosted by a weaker dollar and uncertainty around Trump''s tariff plans. Chinese gold consumption in 2024 declined by -9.6% according to the China Gold Association with jewellery demand -25% q/q. China''s central bank added more gold to reserves in December for a second straight month, following a six-month pause. . Macro data this week: US manufacturing PMI (previous 49.4) and US existing homes sales (consensus +0.5% m/m) today. . STEEL CHINA - Production flat, inventories up WoW: CISA production run rate for the second ten days of January was flat WoW (up +2% YoY). Daily output of ~2.1mt compares with the Q4/Q3 run-rate of ~2.0/2....
RIO FCX FCX SZG
In a nutshell: STEEL - Trump Day 1: No bang, but tariffs still on the agenda STEEL INVENTORIES - US flat-rolled inventories jump to 2.5-year high in December STEEL US - Nucor (+) keeps HRC offers unchanged STEEL US - Weekly production falls amid cold weather Daily Prices as of January 21st / PRICE MOVERS . MACRO/COMMODITY WRAP: Base metals mostly weaker on the SHFE this morning; nickel -0.7%, aluminium -0.5%, copper unch, zinc +0.1%. The global refined copper market was in a 131kt deficit in November vs a 30kt deficit in October, according to the International Copper Study Group. Conversely, the global zinc market deficit narrowed to 52.9kt in November vs 65.4kt in October according to the International Lead and Zinc Study Group. Rio Tinto (+) CEO Jakob Stausholm sounding more optimistic that a Trump Presidency could help progress the stalled Resolution copper mine in Arizona, according to an FT interview. Iron ore futures snapping nearly two weeks of gains with contracts on the Dalian Exchange -1.0% this morning. While futures rallied yesterday with no immediate introduction of tariffs on China, it''s reversed this morning following the Trump administration discussing a 10% tariff on Chinese imports. Gold (2,747/oz) climbing to an 11-week high on Trump policy jitters and a softer dollar. The Fed meets next week with mark expectations that rates will be left unchanged. . Macro data this week: A relatively light week upcoming on the macro calendar - US initial jobless claims (previous 217k) and Eurozone consumer confidence (previous -14.5) tomorrow, Eurozone manufacturing PMI (previous 45.1), US manufacturing PMI (previous 49.4) and US existing homes sales (consensus +0.5% m/m) on Friday. From our strategy team: Trump Is In: Now What? With Trump''s inauguration cleared, investors are left wondering what''s next. Will 2025 be spent second guessing the next tariff related tweet? We think there is more to the outlook than tariffs. Our work continues...
RIO ACX ACX OUT1V VOE VOE SSABA SSABB MT X X NUE NUE STLD STLD CLF CLF CMC CMC
In a nutshell: . BHP GROUP (=): FQ2 FY25 production - Copper improving despite weather impacts in South Australia . TECK RESOURCES (NR): Q4 production ahead, updated multi-year guidance . STEEL EU: Largest political party in Europe proposed to freeze CBAM for at least 2 years Daily Prices as of January 20th / PRICE MOVERS . MACRO/COMMODITY WRAP: Base metals futures rallying on the SHFE this morning on relief that Trump hasn''t imposed tariffs immediately; aluminium unch, zinc +0.2%, copper +0.3%, nickel +1.5%. Iron ore futures rallied for a ninth straight session as for similar tariff reasons. The most traded contract on the Dalian Exchange gained +0.8%. Shares of County Garden (NR), once one of China''s biggest property developers, boosted sentiment as it increased as much as 11% following a nine-month suspension. Gold (2,723/oz) up for a second straight day on a weaker dollar as reports suggested any new US tariffs would be imposed in a ''measured'' way. . Macro data this week: A relatively light week upcoming on the macro calendar - US initial jobless claims (previous 217k) and Eurozone consumer confidence (previous -14.5) on Thursday, Eurozone manufacturing PMI (previous 45.1), US manufacturing PMI (previous 49.4) and US existing homes sales (consensus +0.5% m/m) on Friday. . STEEL EU - Largest political party in Europe proposed to freeze CBAM for at least 2 years: The European People''s Party (EPP), the largest party in the European Parliament, proposed that the EU should put CBAM on hold for at least two years and gradually revise sustainability legislations. In a joint paper released last weekend, EPP suggested the EC should limit the scope of CBAM to large companies with more than 1,000 employees to eliminate the indirect effect to SMEs. ''The EU has decided on ambitious climate targets and policies to achieve them. When implementing them, we must make sure that they do not lead to deindustrialization,'' said EPP. Also, the EPP stressed the...
What happened? Bloomberg reported that RIO (+) and Glencore (+) have discussed a potential combination of the two businesses in what could be the industry''s largest ever deal. Neither company has commented and it is unclear whether discussions even remain live. We expect these headlines to raise eyebrows and we struggle to see the logic behind the conceptual transaction given the lack of product and geography overlap and divergent corporate cultures. We believe it''s a low probability a deal in this format would go ahead and be supported by shareholders. BNPP Exane View: Scale for scale''s sake? A conceptual combination of RIO and Glencore would create a mining behemoth and leap-frog BHP in market capitalisation. But would this really matter and this couldn''t be a major motivator, in our opinion, as neither gets passed over by investors for not being large or liquid enough. Combining the two copper businesses (figure 1) would create the world''s largest copper producer but also draw strict anti-competition review in our opinion. Not an ideal fit Beyond copper, we don''t see where the rationale lies to combine the businesses and even in the red metal Glencore has assets in Africa''s where RIO has historically shied away from. Perhaps the biggest contrast on commodity views is coal which RIO completely exited in 2018 (and even sold some assets to Glencore) whereas Glencore completed the acquisition of EVR and announced its intention to keep coal in the portfolio just c6 months ago. The motivation for RIO is harder to understand On multiple levels we see the strategic rationale difficult to understand but first and foremost bringing coal back into the portfolio would be a strategic U-turn and could weigh on RIO''s valuation multiple and cause some UK/Euro funds to be forced sellers. While RIO would be adding more copper to the portfolio, it would be bringing an ex-growth portfolio at a time when its own asset portfolio is growing (figure 2). We can see the...
Rio Tinto plc Glencore plc
In a nutshell: . APERAM (+): USAP shareholders vote in favor of acquisition, closing expected in Q1 . SSAB (+): Nordic steelmaker pulls out from DRI project in the US . STEEL CHINA: Production up, inventories up WoW . COPPER: Peru''s November copper production fell -4.6% y/y to 241.88kt . COPPER: Cochilco cut forecast on Chile''s copper output to 5.54mt by 2034 . RESULTS: . RIO TINTO (+): 4Q24 production - Pilbara shipments increasingly reliant on SP10, copper/ali production ahead of expectations . FIRST QUANTUM (=): 4Q24 production - Strong quarter, 2025-2027 volumes light of expectations . ANTOFAGASTA (-): 4Q24 production - By-products drive solid net cash cost beat, 2025 capex to top end of the range Daily Prices as of January 15th / PRICE MOVERS MACRO/COMMODITY WRAP: Base metals traded mostly up on the SHFE this morning as the USD paused its rally following the release of softer US CPI data; copper +0.9%, aluminium +0.7%, nickel +0.1%. zinc -0.9%. Iron ore climbed today on the DCE (+2.0%) and SGX (+1.3%). Chinese equities rallied after US inflation came in below expectations. Country Garden (NC) announced it expects to report a narrower annual loss in 2024 as the struggling developer works to revive its business. Gold (USD 2,695/oz) steadied on Thursday after hitting over one-month highs, as softer US core inflation data lifted expectations that more rate cuts were still on the table, although news of a ceasefire accord between Israel and Hamas capped further gains. Macro data this week: US retail sales today (cons. +0.5% m/m); Eurozone CPI (cons. +2.4% y/y), US industrial production (cons. +0.3% m/m), and China 4Q24 GDP (cons. +5.1% y/y) tomorrow. / NEWSFLOW APERAM (+) - USAP shareholders vote in favor of acquisition, closing expected in Q1: Stockholders of Universal Stainless and Alloy Products (USAP) have voted at a special meeting to approve the pending acquisition by APAM. 99% of the shares voted were voted in favor of the merger, which...
RIO ACX ACX BHP SSABA SSABB ANTO FM APAM GLEN
Today's news and views, plus announcements from: RIO, TW., PSON, WTB, TRST, ROO, RAT, SRE, PTAL, AVCT, MATD, PMI, & AAZ.
What happened? RIO reported 4Q24 production with major metals in-line to ahead of expectations. Iron ore shipments have seen a large increase in the mix of SP10 products which will weigh on realisations. Base metal performance was ahead of expectations and notably in copper with sequential increases across its three mines. There was no change to 2025 production guidance (as expected given it was just communicated last month) and 2025 cash cost guidance will be communicated with financial results in February. Outlook commentary highlighted ''signs of stabilisation'' in the Chinese property market in the November data. BNPP Exane View: RIO reported Pilbara iron ore shipments (100% basis) of 85.7Mt, -1% vs BNPPE and Visible Alpha consensus. However, this comes at the cost of increasing reliance on low grade SP10 products which represented 29% of shipments in 4Q24 vs. 22% in 3Q24 and 20% in 1H24. While RIO has reiterated its expectation that SP10 levels will remain elevated until replacement projects are delivered and that it is reviewing its ''future product strategy'' this is a large q/q increase in the mix that weighs on price realisations. Production on base metals was across the board better-than-expected, notably in copper. Mined and refined copper production of 202kt and 69kt was +12% and +35% ahead of consensus. The beats were also notable sequential increases across Kennecott, Escondida and Oyu Tolgoi. The latter benefited from the ongoing commissioning of the conveyor to surface, with the first ore on the belt delivered in October, while open pit operations also achieved an increase in grade. Ramp up for Oyu Tolgoi remains on track to reach 500kt (100% basis) of production for 2028-2036. Bauxite production of 15.4Mt (+9% vs. cons) and alumina production of 1.99Mt (+8% vs. cons) both beat while aluminium production of 0.84Mt was in-line with expectations. On costs for 2024, guidance was unch with Pilbara cash costs expected in the upper half of...
In a nutshell: . STEEL US - Nucor keeps HRC offers unchanged . CHINA CREDIT - December Aggregate financing (2858bn) and New RMB loans (998bn) beat . STEEL BRAZIL - Brazilian HRC prices rises, rebar still struggles . STEEL US - Weekly production recovers, stark differences by region . STEEL EU - ADI receives offers from Jindal, Baku and Bedrock . US REBAR - Long producers hike rebar prices by USD 30/st as scrap moves higher Daily Prices as of January 13th / PRICE MOVERS . MACRO/COMMODITY WRAP: China released better-than-expected December Credit data this morning. Aggregate financing (2858bn yuan) beat on stronger government bond issuance. New RMB loans also came in higher amid the rebound in the mortgage demand, while corporates have remained cautious on their medium- and long-term investment given the murky economic outlook. Base metals trading mixed this morning on the SHFE; zinc -0.3%, copper -0.1%, aluminium +0.2%, nickel +0.2%. Indonesian alumina prices have now declined nearly -25% since early December on expectations of improved 2025 supply following 2024''s supply disruptions. Atalaya Mining (NR) issues 2025 copper production guidance of 48-52kt vs Visible Alpha consensus of 63kt. MMG (NR) expects to resume operations at the Dugald River zinc mine in Queensland after a short disruption from an approaching grassfire. Iron ore futures higher for a fourth consecutive session (+1.6% on Dalian) on elevated steel exports and iron ore shipments from Australia and Brazil slipping 9% w/w according to MySteel data. Gold (USD 2,669/oz) higher this morning ahead of inflation data coming out tomorrow. Speculators have increased net long positions on the COMEX by 12k contracts. . Macro data this week: US CPI on tomorrow (cons. +2.9% y/y); US retail sales on Thursday (cons. +0.5% m/m); Eurozone CPI (cons. +2.4% y/y), US industrial production (cons. +0.3% m/m), and China 4Q24 GDP (cons. +5.1% y/y) on Friday. / . STEEL BRAZIL - Brazilian HRC prices...
RIO MT X X NUE NUE CLF CLF CMC CMC
In a nutshell: . RESEARCH . MINING: On the road - in search of a bull . STEEL: Marketing Feedback - Red-hot Again . CHINA AUTOS: CAAM expects 2025 auto sales to rose +4.7% y/y, driven by continued strength in NEVs . CHINA TRADE: Both Export (+10.7% y/y) and Import (+1.0% y/y) accelerated in December and beat expectations . COPPER: Chilean production rose +10% y/y in November . STEEL US: OCTG prices increase in January . STEEL CHINA: Steel exports reach over 110mt . NUCOR (+): Nucor to build its third structures production utility Daily Prices as of January 10th / PRICE MOVERS . MACRO/COMMODITY WRAP: China December trade data beat expectations with acceleration in both Exports (+10.7% y/y) and Imports (+1.0% y/y). Base metals traded higher on the SHFE today amid better-than-expected China imports data; copper +0.4%, zinc +0.6%, aluminium +0.8%, nickel +1.9%. Nickel price was lifted by Indonesia lowering its 2025 nickel ore mining quota to c200mt (vs. 215mt output in 2024). Iron ore futures rallied on the DCE (+1.9%) and SGX (+1.9%) amid revived hopes of more stimulus from China. China''s central bank chief on Monday said the government will support moderately loose monetary policy to maintain ample liquidity, lifting broad investor sentiment. Gold (USD 2,688/oz) edged lower this morning as a stronger-than-expected US jobs report reinforced the Fed''s cautious stance on rate cuts and boosted the USD. . Macro data this week: China Credit data due from today with Aggregate financing (cons. 2.2tn yuan); US CPI on Wednesday (cons. +2.9% y/y); US retail sales on Thursday (cons. +0.5% m/m); Eurozone CPI (cons. +2.4% y/y), US industrial production (cons. +0.3% m/m), and China 4Q24 GDP (cons. +5.1% y/y) on Friday. / . COPPER: Chilean production rose +10% y/y in November: Cochilco released Chilean (top producer globally) national copper production for November with a headline growth of -0.6% m/m and +9.8% y/y, taking YTD copper production up +3.9% y/y....
RIO BHP AAL GLEN
In a nutshell: . STEEL EU - EC initiates accelerated safeguard review . STEEL EU - ArcelorMittal (+) to close another two distribution centres in France Daily Prices as of December 17th / PRICE MOVERS . MACRO/COMMODITY WRAP: Iron ore futures slid on the DEC (-2.4%) and SGX (-1.5%) as an increasing number of Chinese steel mills are ramping up annual maintenance. Base metals trading lower on the SHFE this morning; copper -0.8%, aluminium -0.5%, zinc -1.5%, nickel -1.6%. Gold (USD 2,645/oz) steadied on Wednesday ahead of the FOMC as the market waited for cues on Fed''s interest rate path in 2025. Markets see a 95% chance of a quarter-point rate cut at this meeting, but only expect a roughly 16% chance of a reduction in January. Global Coal consumption is expected to hit a record high this year and stay near that level until 2027 as strong demand in Asia outpaces declines in the US and Europe, the International Energy Agency (IEA) said on Wednesday. Global coal demand is forecast to be 8.77bt in 2024, with Chinese demand expected to be nearly a third higher than the rest of the world. India is also expected to consume more coal than the EU and the US combined in 2024 as demand in the Asian nation is seen up more than 5% at 1.3bt. . Macro data this week: Eurozone CPI (cons. -0.3% m/m) and US housing starts (cons. +2.5% m/m) today; FOMC rate decision also on Wednesday (cons. 25bp cut). US PCE core deflator (cons. +0.2% m/m) on Friday. . STEEL EU - EC initiates accelerated safeguard review: Yesterday, the European Commission announced it would initiate a review of steel safeguards (tariff-rate quotas) following a request by 13 EU Member States made on November 29. The measures have been extended twice, most recently in June 2024 and will expire on 30 June 2026, when the duration reaches the maximum eight years allowed under EU law and WTO rules. The request made by member states calls for a reassessment of the allocation and management of the...
RIO BHP SSABA SSABB X X APAM
In a nutshell: . STEEL DYNAMICS (=): Mid-quarter guide - Big EPS miss as outage weigh on volumes . NUCOR (+): Mid-quarter guide - Another big EPS miss... but expected as well . STEEL US: Weekly production retreats from 3-month high . STEEL US: Nucor keeps HRC offers unchanged for a fifth week in a row . BHP (=) / RIO (+): build low-carbon iron pilot plant in Western Australia Daily Prices as of December 16th / PRICE MOVERS . MACRO/COMMODITY WRAP: Reuters reported that Chinese leaders agreed during last week'' CEWC to raise the budget deficit to 4% of GDP next year, while maintaining an economic growth target of around 5% (cons. 4.5%). The additional 1% of GDP in spending amounts to about 1.3tn yuan, funded through issuing off-budget special bonds. These targets are usually not announced officially until the ''Two Sessions'' in March. They could still change before the legislative session. Wider budget deficit forms part of China''s preparations to counter the impact of an expected increase in US tariffs on Chinese imports. Iron ore futures moved in a tight range on Tuesday, as markets weighed steel mill winter restocking against lacklustre downstream demand in China. Base metals trading mostly lower on the SHFE this morning; copper -0.1%, zinc -0.6%, aluminium -1.8%, nickel -2.0%. Gold (USD 2,650/oz) steadied on Tuesday ahead of the FOMC as the market waited for cues on Fed''s interest rate path in 2025. . Macro data this week: US industrial production today (cons. +0.2% m/m); Eurozone CPI (cons. -0.3% m/m) and US housing starts (cons. +2.5% m/m) on Wednesday; FOMC rate decision also on Wednesday (cons. 25bp cut). US PCE core deflator (cons. +0.2% m/m) on Friday. . STEEL US - Weekly production retreats from 3-month high: US steel production decreased last week, down -1.0% WoW (vs +1.8% WoW the week before), driving utilization rates down to 74%. The weekly output now is +2% MoM but down -4% YoY (flat YTD). We note that the decrease in production...
RIO BHP X X NUE NUE STLD STLD
In a nutshell: . OUTOKUMPU (=): Profit warning: EBITDA could reach 10-year low in Q4 . RIO TINTO (+): expand production plans at its lithium plant in Argentina . COPPER CHINA: Operating rates of copper semis producers expected to decline in December . NICKEL CHINA: NPI prices expected to trend lower in December amid weak stainless-steel prices Daily Prices as of December 12th / PRICE MOVERS . MACRO/COMMODITY WRAP: China''s CEWC concluded yesterday in a pro-growth tone similar to the December Politburo meeting. Policymakers are still trying to strike a balance between growth and other targets with moderate fiscal and monetary packages next year and without immediate bazooka style stimulus. The CEWC also deleted the statement about ''adopting unconventional countercyclical measures'', which appeared in the Politburo meeting readout earlier this week, probably finding the words too strong. Iron ore futures slid on the DCE (-1.1%) and SGX (-2.2%) as China''s latest vows of further stimulus to shore up its faltering economy failed to impress investors. Base metals are trading mostly lower on the SHFE this morning amid dollar strength; copper -0.8%, aluminium -0.6%, zinc -0.2%, nickel +1.2%. Gold (USD 2,685/oz) edged higher on Friday and is set for a weekly gain amid heightened expectations of Fed rate cut next week. . Macro data this week: China credit data due today with Aggregate financing (cons. 2.9tn yuan); Eurozone industrial production (cons. -0.1% m/m) also today. China November economic data download next Monday with Industrial production (cons. +5.2% y/y), Retail sales (cons. +5.3% y/y), FAI (cons. +3.4% y/y). / . COPPER CHINA: SMM outlook - Operating rates of copper semis producers expected to decline in December. China''s copper semis output in November was estimated at 2.05mt, up +4.1% m/m and up +1.9% y/y. Participants surveyed by SMM indicated that their operating rates were up +5.1ppt m/m averaging 69.7% in November amid export rush...
RIO ACX ACX OUT1V APAM
In a nutshell: . UNITED STATES STEEL (+) - Biden hasn''t changed his mind. Implications of a no-deal scenario . STEEL EU - Moselle River incident to cause some raw material inflation but only limited steel supply disruptions . STEEL BRAZIL - CSN expects 3-4% demand growth in 2025 and imports to recede Daily Prices as of December 11th / PRICE MOVERS . MACRO/COMMODITY WRAP: US November CPI show benign prints, clearing the way for a December rate cut. However, Fed officials are increasingly worried about resilient non-shelter inflation amid a strong economy and incoming inflationary policy mix. Base metals trading mostly higher on the SHFE this morning amid stimulus hopes from China; nickel +3.4%, aluminium +0.9%, zinc +0.2%, copper unch. Spot Alumina price unexpectedly dropped -15.6% w/w yesterday amid improvement in supply (Indonesia origin). The guidance withdrawal by S32 (-) at its Mozal aluminium smelter also led to the prospect of reselling its unused alumina into the spot market. SMM reported that some aluminium smelter in Sichuan province has started to cut production (205ktpa) due to high cost. Meanwhile, the dispute between EGA and the Guinean government remains unresolved over the ongoing ban on bauxite exports. Iron ore futures recovered on the DCE (+1.3%) and SGX (+1.4%) from previous sessions'' losses, as investors awaited clues on policy easing from China''s upcoming Central Economic Work Conference (CEWC). Gold (USD 2,715/oz) edged lower on Thursday as investors booked profits after prices hit one-month high on increased expectations of Fed cut. The market now sees a 98.5% change of a 25bp cut on Dec 18, compared with about 86% odds before the US inflation report. . Macro data this week: China credit data due from today with Aggregate financing (cons. 2.9tn yuan); ECB policy rate decision also today (cons. 25bp cut). Eurozone industrial production (cons. -0.1% m/m) on Friday. / . STEEL EU - Moselle River incident to cause...
RIO BHP MT X X CLF CLF
In a nutshell: . COPPER: Chilean production bounces in October . CHINA AUTOS: November production accelerated; NEVs continued as growth drive; export slowed Daily Prices as of December 9th / PRICE MOVERS . MACRO/COMMODITY WRAP: Base metals trading mostly higher on the SHFE this morning amid stimulus hopes from China''s upcoming Central Economic Work Conference (CEWC); copper +0.8%, zinc +1.0%, aluminium +0.6%. nickel -1.2%, Iron ore futures edged lower on the DCE (-1.6%) and SGX (-0.8%). Several cities in Hebei Province have enforced environmental production restrictions, prompting major mills such as Hebei Jinding Heavy Industry, Hebei Wen''an Steel, and Xinxing Casting Pipe to halt operations. Gold (USD 2,690/oz) remained near a two-week peak touched earlier on Wednesday ahead of a closely watched US inflation report. . Macro data this week: China credit data due from today with Aggregate financing (cons. 2.9tn yuan); US CPI also today (cons. +2.7% y/y); ECB policy rate decision on Thursday (cons. 25bp cut). Eurozone industrial production (cons. -0.1% m/m) on Friday. / . COPPER: Chilean production bounces in October: Cochilco released Chilean (top producer globally) national copper production for October with a headline growth of +3.0% m/m and +6.4% y/y. Codelco churned out 127.9kt in October, up +3.9% m/m but remained flat y/y. Escondida [BHP (=) / RIO (+)] accelerated +6.4% m/m to 108kt and was up +22.2% y/y. Chilean copper production / Source: Cochilco, BNP Paribas Exane NEWSFLOW CHINA AUTOS - November production accelerated; NEVs continued as growth driver; exports slowed Data disclosed by China Association of Automotive Manufacturers (CAAM) showed that November production rose +14.7% m/m to 3.44m units (+11.1% y/y), taking YTD volume to 27.9m units (+2.9% y/y). November auto sales rose by +8.6% m/m to 3.32m units (+11.7% y/y), taking YTD sales volume to 27.9m units (+3.7% y/y) NEV production and sales recorded 1.57mt (+45.8%...
RIO BHP AAL
In a nutshell: . BOLIDEN (RS) - Acquisition of Neves-Corvo and Zinkgruvan . CHINA INFLATION - November CPI (+0.2% y/y) missed while PPI (-2.5% y/y) better than expected . AUTO CONTRACTS - EU annual contracts likely to settle EUR 50-100/t lower . STEEL EU - Steelmakers implement defensive price hikes for long products . US SCRAP - Scrap prices down in early December trading Daily Prices as of December 6th / PRICE MOVERS . MACRO/COMMODITY WRAP: China''s CPI (+0.2% y/y) hit a five-month low in November and PPI deflation (-2.5% y/y) persisted, suggesting limited impact from the latest round of stimulus. The market focuses on China''s Central Economic Work Conference (CEWC) meeting this week for clues of policy direction. Base metals trading mixed on the SHFE; nickel +1.4%, copper +0.3%, zinc unch. aluminium -0.4%. Iron ore futures edged up on the DCE (+1.6%) and SGX (+0.8%) amid hopes of further stimulus from China. Gold (USD 2,645/oz) gained on Monday with support from China''s central bank resuming gold purchases, while investors awaited US inflation data later this week. . Macro data this week: China trade data tomorrow with Exports (cons. +9.3% y/y) and Import (cons. +0.4% y/y). China credit data due from Wednesday with Aggregate financing (cons. 2.9tn yuan); US CPI also on Wednesday (cons. +2.7% y/y); ECB policy rate decision on Thursday (cons. 25bp cut). Eurozone industrial production (cons. -0.1% m/m) on Friday. / . AUTO CONTRACTS - EU annual contracts likely to settle EUR 50-100/t lower: According to industry sources, the range at which 2025 contracts should settle at has narrowed in recent weeks. Weeks ago, Argus reported that automakers initially pushed for EUR 200/t decline in annual contract negotiations for next year, mirroring the moves seen in the spot market. It now seems OEMs are targeting discounts of EUR 100/t while mills are offering YoY reductions of EUR 50/t. Voestalpine CEO recently dismissed the idea of triple digit...
RIO BHP VOE VOE AAL MT
In a nutshell: . US AUTO: November sales increased MoM, inventories down . RIO TINTO (+): Investor Day - first take . VALE (=): Vale Day targets - first take Daily Prices as of December 3rd / PRICE MOVERS . MACRO/COMMODITY WRAP: China on Tuesday banned exports of critical minerals gallium, germanium and antimony that have widespread military applications to the United States, a day after Washington''s latest crackdown on China''s chip sector, escalating trade tensions. Base metals traded higher on the SHFE this morning; nickel +2.6%, aluminium +1.0%, copper +0.9%, zinc +0.4%. Iron ore futures (+0.4% on Dalian) inched higher on Wednesday, buoyed by ongoing restocking activity among Chinese steel mills. Steel mills typically restock raw materials for a period of 6 to 9 weeks before the Chinese New Year holiday. With just two weeks of restocking completed so far, there remains ample room for further purchases through December. Gold (USD 2,645/oz) steady this morning as markets awaited US jobs data and comments from Fed Chair scheduled later in the day. Data released yesterday showed the US job openings increased moderately in Oct while layoffs declined. . Macro data this week: Eurozone service PMI (cons. 49.2), US ADP (cons. 158k), and US ISM service (cons. 55.4) today; Eurozone 3Q GDP (cons. +0.9% y/y) and US nonfarm payrolls (cons. 190k) on Friday. . US AUTO - November sales increased MoM, inventories down: US light vehicles sales increased MoM and were up +6% on a YoY basis, taking the November-24 SAAR to 16.66m units, +5% higher compared with the 3-month moving average. Light Trucks sales (penetration of ~81%) were up +12% YoY, compared to Passenger car sales up +5% YoY. Inventories were down both MoM and YoY. In Light truck, inventory stood at 61 days (vs 64 in Nov-24 and 49 in Nov-23) and Passenger Cars inventory stood at 44 days (vs 44/38 respectively). Overall, inventory is now at 58 days (vs 60/47). CLF (-) had flagged weaker...
Rio Tinto plc Vale S.A. Sponsored ADR
What happened? RIO released the slide deck ahead of the 8am (UK time) kick-off of its 2024 Investor Seminar. On the guidance front, there were small, positive tweaks to 2024. 2025 was presented for the first time and is slightly light (-2%) on iron ore shipments vs consensus but in-line on copper, an area where there had been some concern given recent underperformance. Mid-term capex guidance has been lifted by USD 1bn per annum, above prior guidance, and current consensus. BNPP Exane View: 2024 production guidance was largely unchanged. The Bauxite range was kept at 53-56Mt but is now expected to exceed the top end of guidance (consensus 57Mt) vs previously expecting to be around the top end. Alumina''s range of 7.0-7.3Mt is now expected to be around the top end of the range (consensus 7.1Mt). 2025 guidance has been released and there are several puts and takes. 2025 Pilbara shipments (100% basis) is guided to 323-338Mt, the mid-point of which is -2% vs Visible Alpha consensus. Mined copper, where we believe there was some sense of concern amongst investors given recent underperformance, was guided to 780-850kt and was in-line with consensus at the mid-point. The full breakdown relative to BNPPE and consensus can be found in the exhibit below. Moving forward, RIO is no longer providing guidance separately on mined vs refined copper. Capex guidance has been refreshed with mid-term now seen at USD 10-11bn (cUSD 10bn prior). 2024 is expected at USD 9.5bn (in-line with consensus) and 2025 at USD 11bn (cons 10.2bn). Within that, growth capex of USD 3bn per annum remains, albeit a growing majority in 2026 and 2027 is now currently unallocated. The Winu copper-gold project has found a partner in Sumitomo Metal Mining (SMM) as the latter will pay USD 399m for a 30% equity share of the project (USD 195m up front and USD 204m deferred). The project, located in Western Australia, was discovered in 2017 and is expected to complete a pre-feasibility study in...
On Monday, U.S. President-elect Trump confirmed one election promise: the roll-out of trade tariffs. He’s threatened to impose 25% on all imports from Canada/Mexico (migrant themes); an additional 10% on all imports from China (drug themes). What commodity trades are most exposed to this general trade policy? For now, it’s mainly steel/aluminium imports from Canada. But as the US depends heavily on these two trades, they’ll soon be exempt – as they were in Trump’s first term ‘tariff war’. What of China? For major markets like steel & base metals – the US has never directly depended on imports from China. But 2018-19’s US-led trade conflict revealed that China is willing to retaliate, targeting many other US flows with its own tariffs (oil, gas, scrap, ag, rare earths, etc.). Here though, we focus on the state of global steel markets, before they’re unsettled by another tariff war…
In a nutshell: . ANGLO AMERICAN (+): Coal sale - positive first step in restructuring . STEEL CHINA: Production down, inventories up WoW . STEEL EU: Unions at Liberty Steel''s Dudelange call for EU intervention Daily Prices as of November 22th / PRICE MOVERS . MACRO/COMMODITY WRAP: US dollar dropped after the selection of Scott Bessent as the next Treasury Secretary, underscoring the relief over the nomination. Bessent, a Wall Street veteran, has called for a gradual approach to implement trade restrictions and has appeared open to negotiation on the exact size of tariff. Base metals traded mostly higher on the SHFE this morning amid softer dollar; copper +0.3%, zinc +0.1%, aluminium +0.3%, nickel +0.8%. Rio Tinto (+) has lifted the force majeure at its Gladstone alumina refineries in Queensland, Australia. The market reaction to the lifting was muted given RIO had been delivering tonnes for several months from Gladstone. In its 3Q24 report, the company said gas supplies in the region were back to 95% of its total requirement and that full supply was expected to be achieved by the end of 2024. Iron ore futures ticked higher this morning on the DCE (+0.8%) and SGX (+1.6%), supported by restocking activity from Chinese steel mills and the announcement of the next US treasury secretary. Gold (USD 2,670/oz) dropped on Monday, weighed down by profit-taking after a five-session rally, with focus shifting their attention to the Fed upcoming interest-rate decision. Traders currently see a 56% chance of another 25bp rate cut in December, compared to 62% last week. . Macro data this week: FOMC releases its meeting minutes on Tuesday; US board consumer confidence Nov (cons. 112.0) also on Tuesday; US durable goods orders Oct (cons. +0.3% m/m) and US core PCE deflator (cons. +2.8% y/y) on Wednesday; Eurozone CPI Nov (cons. +2.3% y/y) on Friday. . STEEL CHINA - Production down, inventories up WoW: CISA production run rate for the second ten days of...
RIO AAL MT
‘Hey guys, why has aluminium’s price rally stalled? Isn’t China’s export tax rebate cut a big deal?’ Frustrated aluminium investorLast Friday, aluminium’s global prices jumped on China’s surprise trade tax adjustment. Policy shift’s motivations + China’s ali-trade + reason this was never a sustainable price-driver + other things – are all discussed here…
In a nutshell: . RIO TINTO (+): review finds rape; more work to do to improve conditions for women . PERU COPPER: September production fell -1.2% y/y Daily Prices as of November 19th / PRICE MOVERS . MACRO/COMMODITY WRAP: NDRC reaffirmed that China is expected to achieve 2024 goals and China has ample policy room and tools to support economic recovery. The economic planner said on Tuesday that China''s economy will maintain its recovery momentum in November and December. Looking ahead to 2025, NDRC highlighted several areas where there is untapped demand to be unleashed, including new-type urbanisation, improvement of migrant workers welfare, energy conservation and carbon reduction. Base metals traded up broadly this morning on the SHFE on a softer dollar; copper +0.7%, zinc +2.0%, nickel +1.8%, aluminium +1.6%. Iron ore edged up this morning on the DCE (+1.0%) amid hopes of further stimulus in China but largely flat on the SGX. Shenzhen announced on Tuesday that it will eliminate the distinction between ordinary and non-ordinary housing to ease the tax burden on larger home transactions. The government in the Chinese city of Guangzhou has expanded its program to buy up old apartments, which the market has read as a positive sign of demand for construction-related materials. New home sales in 31 major cities rose in the first half of November from last year''s low base. If such a trend continues, November is likely to see a rising y/y growth in new home sales for the first time since May last year. Daily transaction volumes of construction steel products in China climbed for a third-consecutive session by +0.67% to 135.1kt on Tuesday, data from Mysteel showed. Gold (USD 2,630/oz) rose this morning due to escalating Russian-Ukraine tensions. Russian President Vladimir Putin lowered the threshold for a nuclear strike in response to a broader range of conventional attacks, days after reports said Washington had allowed Ukraine to use US-made...
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In a nutshell: . EU STEEL (MT/SSAB/SZG) - Fully on their own . US SCRAP - Scrap prices trade sideways in November Daily Prices as of November 11th / PRICE MOVERS . MACRO/COMMODITY WRAP: China plans to lower certain taxes for home purchases in mega cities including Shanghai and Beijing to stimulate housing market demand. Trump is expected to choose Marco Rubio as Secretary of State as the president-elect fills his top ranks with loyalists. Base metals were trading negative this morning on the SHFE; zinc -0.2%, aluminium -1.8%, copper down, nickel -0.7%. Vulcan Energy Resources (NR) received EUR 100m funding from the German Federal Ministry for its renewable energy plant in Landau, Germany. Paladin Energy (NR) slashed its FY 2025 output forecast for the Langer Heinrich mine in Namibia to 3.0-3.6mlb (from 4.0-4.5mlb prior) amid operational challenges. Iron ore futures traded within a narrow range this morning (-0.1% Dalian) as investors assessed a slew of softer economic data in China. Gold (USD 2,617/oz) is down -0.1% on Tuesday as Trump''s election victory last week continued to drive the dollar higher. . Macro data next week: Eurozone Industrial Production (prev +1.8% m/m) and US CPI (cons +2.5% y/y) on Wednesday, Eurozone 3Q24 GDP and US initial jobless claims on Thursday, China FAI, Industrial Production and Retail sales data on Friday. . US SCRAP - Scrap prices trade sideways in November: After rising modestly in October, US scrap prices traded sideways into November. Initially, market participants had been optimistic into year-end, but the export scrap market weakened as Turkish mills stopped purchasing. Then, several US mills cancelled on undelivered October contracts, adding more pressure. Prime grades were flat around USD 400/t with shredded at USD 380/t. Only HMS rose by USD 10/t to USD 320/t. Market participants expect some uptick into December as supply tightens and Trump''s election somewhat improves visibility into next year....
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In a nutshell: . US REBAR (NUE/CMC) - Steelmakers hike offers for the first time in almost a year . ARCELORMITTAL (+) - Plan of new 18mt greenfield plant in India gets more precise . CLEVELAND-CLIFFS (-) - Q3 preview: stretching the balance sheet . US AUTO - October sales increased MoM, inventories continue to rise . THEMATIC RESEARCH - Trump vs Harris: The Final Countdown . ESG - Materiality Mapped - Sector by Sector Daily Prices as of November 1 / PRICE MOVERS . MACRO/COMMODITY WRAP: China''s National People''s Congress are meeting during November 4-8 to discuss approval of the fiscal stimulus measures. The market is closely monitoring the US Election on Tuesday. Base metals trading was higher this morning on the SHFE; nickel +1.0%, aluminium +0.3%, zinc +0.8%, copper edged up. Rio Tinto (+) was reportedly in three way talks with Entree Resources and the Mongolian government to reach a deal that would allow RIO to access parts of the OT mine owned by Entree in order to prevent a drop off in grades. Botswana''s new president Duma Boko said on Friday that he wanted to conclude talks for a new sales pact with De Beers, a unit of Anglo America (+). Iron ore futures slid this morning as the market closely monitor the US election and a key meeting by China''s NPC for cues on stimulus measures. Gold (USD 2,742/oz) remained below a record high as the market monitor a tight US presidential election that could have a significant impact on economic policy. A 25bps Fed rate cut is 95% priced for November. . Macro data this week: US Factory orders on Monday, China Exports and Imports on Wednesday, US Nonfarm Productivity on Thursday . US REBAR - Steelmakers hike offers for the first time in almost a year: According to industry sources, Gerdau followed CMC (+) and STLD (=) in raising rebar prices by USD 30/st last Friday. This marks the first price hike in almost a year and follow similar attempts for plate, HRC and OCTG from other producers in recent...
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Something odd’s happening in Aluminium World. The 10-15% choppy rally in its metal’s price from Q3-lows, can’t be simply explained in terms of some sort of macro-driver (US rates, China stimulus, etc.). That’s because typically boring Aluminium’s got a big fundamental price driver in play too – a rare raw materials shortage. What’s going on? Operational issues are being reported not only by this industry’s bauxite exporters, but also by the refineries which convert ore-to-oxide for delivery to aluminium’s smelters. In just the last few weeks, panic buying/substitution has broken out along the world’s ore-oxide-metal supply chain. Why do we think there’s panic? Well, right now, alumina ready for export to China from an Australian port is being priced at a premium to alumina already in China. Basically, smelters over there are desperate for more oxide…
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We update our estimates following 3Q24 production results. The impact to our estimates is minor with EBITDA and EPS -1% for 2024-2026. We do not consider the changes to be material; our TP and rating is unchanged.
What happened? RIO''s 3Q24 production report came in light of expectations with Pilbara shipments in-line, another weaker-than-expected quarter in copper and a more mix bag in aluminium. Guidance wise, there were just two revisions with Pilbara unit costs revised towards the top end of the range and IOC production revised lower. Shares have only modestly underperformed peers in Aussie trading following the release. BNPP Exane View: Iron ore Pilbara shipments of 84.5Mt were in-line with VA consensus and +1% y/y. SP10 levels represented 19% of shipments (17% in 1H24) and are expected to remain elevated until replacement projects are completed. Construction of Western Range is now 80% complete with first ore from the system on track for 2025. Similarly, the Rhodes Ridge pre-feasibility study is still expected for 2025 with first ore by the end of the decade. IOC production of 2.1Mt was -18% vs. consensus, continuing a trend of disappointing results, impacted by an 11-day shutdown following forest fires in mid-July. The only changes to guidance were on the iron ore side. 2024 Pilbara unit cash costs are now expected to be in the upper half of the USD 21.75-23.40/t range (cons: USD 22.7/t) due to inflationary pressures at the higher end of RIO''s internal expectations. IOC production guidance was lowered to 9.1-9.6Mt vs. 9.8-11.5Mt previous. While consensus had already gone to the low end of the range (10.0Mt), the new mid-point is -6% below current consensus. Copper missed with mined -4% vs. consensus and refined -7% vs consensus. Kennecott, as flagged in 2Q24, faced limited movement to access the primary ore face as highwall movement was monitored along two faults. This will continue to restrict ore deliveries from the primary face though 2025/2026 and RIO expects to provide a more detailed update at the investor seminary in December. Oyu Tolgoi''s production was +19% y/y but -5% q/q due to planned maintenance and adverse weather impacting the open pit...
Today's news and views, plus announcements from: INF, RIO, HL., MNDI, PRTC, CMCX, HMSO, CUSN, REVB, SNOX, LABS, & SERE.
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What happened? Following Reuters reporting late last week that RIO was in discussions with Arcadium Lithium (NR), and both companies confirming an approach was made, this morning RIO has announced its acquisition of Arcadium in an all-cash transaction valued at USD 6.7bn. A call will be held this morning by both management teams at 9:30am UK time. BNPP Exane View: Valuation wise, the USD 6.7bn is at the upper end of the ''USD 4-6bn or higher'' per Reuters from last week and probably a bit above what most investors anchored around (USD 6bn) early this week. The transaction represents a 90% premium on Arcadium''s closing price of USD 3.08/sh on 4 October 2024 and a 39% premium to the VWAP since Arcadium was created on 4 January 2024. Implied multiplies based on 2025 and 2027 consensus EBITDA is 15.3x and 6.7x. The transaction is expected to close mid-2025. For as much as the industry has been criticised in the past for deals done pro-cyclically this potential deal would appear to be counter-cyclical with the lithium price nearly -60% y/y and -85% vs its 2022 peak. As we highlighted in our note earlier this week (here), this all-cash transaction will put little strain on RIO''s balance sheet where we see 2025 standalone net debt/EBITDA of 0.3x moving to 0.5x on a proforma basis. Growth capex related to Arcadium is anticipated be c5% of RIO''s group capex guidance of up to USD 1bn in 2025 and 2026. Arcadium has been one of the few producers to have rolled out direct lithium extraction (DLE) at its El Fenix site on Argentina''s Hombre Muerto Salar. Rio is testing a form of its own DLE technology at its Rincon brine project. At its recent Investor Day, Arcadium unveiled 2027 production targets of 170ktpa LCE by 2028 (vs. 75ktpa today) which was down from the 250ktpa in 2027 pitched ahead of last year''s merger of Livent and Alkem which created Arcadium.
What happened? Late on Friday, Reuters reported that Rio Tinto (+) in talks to buy Arcadium Lithium (NR, ALTM US) as discussions continued throughout LME Week in London. Talks remain ongoing with an offer expected ''in the near future'', according to the report, and with a valuation between USD 4-6bn or higher. Arcadium shares, which are -55% YTD, jumped as much as +34% post-market. Implied valuation multiples vary significantly depending on the time period for EBITDA used. Based on the USD 4-6bn range reported, EV/EBITDA would be 9-14x based on 2025 consensus but 4-6x based on 2027 consensus. BNPP Exane View: Speculation has been around for some time that Rio Tinto would look to buy something in lithium and earlier in the day it was reported by The Australian that Arcadium and Albermarle (NR, ALB US) could be in its sights. CEO Jakob Stausholm has signalled a clear interest in lithium and a conceptual acquisition of Arcadium would fast track those ambitions by making it a top-3 producer globally vs a more prolonged time period to get that scale from its own development projects Rincon (Argentina) and Jadar (Serbia). There had been significant shareholder concern that Rio would develop Jadar and add more supply to a currently oversupplied market, which has pushed the narrative more recently to buy vs build. For as much as the industry has been criticised in the past for deals done pro-cyclically this potential deal would appear to be counter-cyclical with the lithium price nearly -60% y/y and -85% vs its 2022 peak. Near-term metrics of a potential deal screen is expensive, but this is the right time in the cycle to make an acquisition as RIO is a clear long-term believer in lithium and we prefer buy vs build at this stage. Arcadium has been one of the few producers to have rolled out direct lithium extraction (DLE) at its El Fenix site on Argentina''s Hombre Muerto Salar. Rio is testing a form of its own DLE technology at its Rincon brine project. In...
Last week we visited RIO''s aluminium business in Quebec, Canada. We came away impressed with the scale of the business, particularly the hydro generation which provides 90% of their regional power needs. Aluminium remains a minority of group EBITDA (16% in 2024-2026) but is a differentiator vs peers as RIO is the largest western producer and a top-5 producer globally. A bullish long-term view on aluminium markets RIO forecasts low- to mid-single digit demand CAGR in global aluminium demand, led regionally by North America, secondary over primary and value-add products over remelt. By 2030, RIO targets value-add product volumes to be 50% share of its product offering, with the integration of Matalco being a clear boost on the secondary side (vs 45% in 2023). 2030 targets for an additional 500bps of EBITDA margin is a combination of cost focus on fixed and variable and product offering. Advancing new technologies in North America The USD 1.1bn investment to expand the AP60 aluminium smelter at the Complex Jonquiere is progressing well vs budget and schedule, with near-term focus on completing the concrete pour before winter months. Commissioning of the new pots will run over 2.5 years with the smelter fully ramped up by the end of 2026. ELYSIS is always a focal point as the industry has been searching for the inert anode for over 100 years. Currently focused on a demonstration plant, first production is set for 2027 but unlikely to be large enough to be commercial before 2030. Hydro an underappreciated asset in Quebec Until seeing the hydro assets in person we underappreciated the scale and flexibility they provided the downstream smelters. The combined power generation in Quebec (6 powerhouses and 3 reservoirs) of 3,150MW provides 90% of their regional power needs and allows electricity to also be sold back to Hydro Quebec opportunistically. The total watershed is 73,800km2 and rainfall in the northern portion generates electricity 5x given the...
Next month (24-26 Sept) we will be visiting RIO''s aluminium assets in Quebec, Canada. The province alone accounts for c50% of RIO''s global aluminium capacity and benefits from plentiful access to hydro power generation. RIO remains our preferred iron ore miner, offering a high single digit divi yield, clean balance sheet and growth in base metals via the copper business. Framing Aluminium''s footprint within the portfolio RIO is the largest western aluminium producer and the 4th largest producer globally (4.6% market share). Its next closest western peers are Alcoa (#9) and Norsk Hydro (#12), with RIO producing c30% and c80% more aluminium than those two. But it''s through the aluminium value chain that RIO''s footprint stands out as it is the #1 global producer of bauxite (10.7% share) and 6th largest alumina refiner (4.6% share). We forecast Aluminium to represent 16% of group EBITDA in 2024-2026, above the 5-year average (11%) and more in-line with the 2014-2018 average (17%) Quebec is RIO''s biggest aluminium base Canada represents c60% of RIO''s aluminium production, of which the majority is in Quebec. In fact, it is only the Kitimat (BC) facility not in Quebec amongst the Canadian operations. While the overall aluminium business has faced operational instability in recent years, the Quebec assets have been relatively stable. What we will we be looking for There are three key topics we will be looking for updates on. The recently acquired Matalco JV''s ramp-up to capacity and expansion optionality. Investments into the AP60 aluminium smelter with low-carbon technology at Complexe Jonquiere and associated CO2 reduction (-50%). The ELYSIS JV with its long-term goals of producing carbon free aluminium via inert anode technology, which would emit oxygen rather than CO2 in the aluminium smelting process.
This week, Resources’ investor queries related mainly to just 3 x public statements: 1. Baowu’s Chairman Hu, describing China’s steel industry outlook as a ‘harsh winter’; 2. China’s govt., restricting exports of an obscure metal, antimony; and, 3. US Fed’s Chairman Powell, flagging the possibility of a September rate cut. Here, we explain the implications of all three, to Commodity World…
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We update estimates following 1H24 financial results from Rio Tinto (+) and FQ4 production results from South 32 (-). South32 - Previewing FH2 results in late August Following FQ4 production results and FY25 production guidance, we cut FY24 underlying EBITDA by -4%, FY25 -5% and FY26 -3%. This is detailed in Figure 2 overleaf. Given the amount of information provided within the production report - production, realised prices, cash costs - it''s not surprising that our revised estimates are so close to consensus (Figure 1). We forecast FH2 underlying EBITDA of USD 1.04bn, underling earnings of USD 0.3bn and dividend of USc 2.6/sh, all of which are a low single digit or less variance away from consensus. South32 releases results last within our coverage, 29 August (Aus morning). Given the earnings decreases, our TP falls to 136p (prev 150p) and we reiterate Underperform. Rio Tinto - Another steady half-year Our comments from RIO''s 1H24 results largely mirror what we said post 2H23, it was a boring (not in a bad way) half-year print. Considering that, it''s not a surprise that our estimate revisions are minor. Our 2024-2026 EBITDA forecasts (Figure 3) are trimmed by -1% as we lower iron ore and copper but upgrade aluminium forecasts. Takeaways from the results presentation were primarily that RIO is seriously considering larger scale MandA, more so than in recent history, and it is looking at different capital allocation opportunities. Buybacks on the PLC line were discussed but would require Chinalco to participate/sell down and those conversations have yet to take place. Reiterate Outperform with TP 6,900p (prev 7,000p).
Rio Tinto plc South32 Ltd.
RIO delivered a largely in-line print at EBITDA and the interim divi while FCF was a bit light of expectations. An earnings call has already taken place at an Aussie friendly time and another will be held this morning at 8am UK time. A largely in-line 1H24 RIO reported underlying EBITDA of USD 12.1bn, in-line with both BNPPE and VA consensus. Relative to consensus, Iron Ore was in-line, Aluminium (+10%) and Copper (+5%) were ahead and Minerals (-13%) was a laggard. The net effect of the different other line items was more negative than expected but not a material driver at the group level. RIO declared an interim divi of USD 1.77/sh, -2% vs. consensus on an in-line payout ratio (50%) but driven by a slightly lower underlying EPS. FCF of USD 2.8bn was -10% vs. consensus despite capex coming in lighter than expected but negatively impacted by several line items including greater-than-expected WC investment and utilisation of provisions. Despite this, net debt of USD 5.1bn was only +2% above consensus. Please see a detailed variance table overleaf. Still seeing lag in inflation RIO notes that opex inflation has eased but still seeing lag impacts on third party costs including contractor rates, consumables, and some raw materials. Labour tightness in key regions Western Australia, Quebec and Utah remains an inflation pressure. MandA ambitions RIO noted being at an ''inflection point'' in its growth with a step change in its aluminium business, consistency in the Pilbara and continued ramp up at Oyu Tolgoi. Copper equivalent volume growth is expected +3% CAGR between 2024 and 2028. Lithium and copper remain two key areas CEO Jakob Stausholm highlighted as wanting to grow more but stressed his view that synergies would need to outweigh premiums paid in conceptual deals.
Yesterday, the price of iron ore fines (landed somewhere in north China) – the rust trade’s flagship signal – slid below the US$100/t-level for the 3rd time this year. Not only are China’s shaky steel demand growth + robust finished steel exports + ballooning ore stocks – all dragging on ore prices, investors have just discovered ‘post-plenum’ that there is no outsized stimulus coming to save Steel World…
Looking ahead to 1H24 results (30 July) RIO will release 1H24 financial results on 30 July at 23:30 UK time. We forecast 1H24 underlying EBITDA of USD 12.1bn, -4% vs current Visible Alpha consensus. At the divisional level we are ahead in copper and below consensus in the other divisions, having updated for realised pricing and cost commentary. We expect there will need to be a greater decline in consensus FCF as the guided USD c0.7bn WC build in 1H24 needs to be integrated vs current consensus for a small WC release in the period. We forecast FCF of USD 2.35bn, -39% vs cons. The lower earnings forecast and the WC impact is the vast majority of the delta vs consensus FCF. Our 1H24 interim divi of USD 1.80/sh, implies a 50% payout ratio. A more detailed comparison of our estimate vs consensus can be found overleaf (Figure 1). 2Q24 production wrap Generally an underwhelming update with the downward revision (lower end of the range) to mined copper the surprise, on continued disappointing performance at Kennecott. Alumina was also downgraded but this has been well understood by the buyside given the outage at its Gladstone facility in Queensland, Australia. For a more detailed review of production results, please see our flash note here. Estimate revisions Post 2Q24 production results we cut 2024 EBITDA incl JVs and associates by -4%. We revisited our outer year assumptions across the divisions which amounted to no change at 2025 group EBITDA but a +3% increase in 2026. This increase was primarily due to the copper division and our mined production forecasts. A detailed table on our estimate revisions can be found in the following pages (Figure 2). We continue to derive our TP via an equal weighting between DCF and ROCE/WACC. Reiterate Outperform with 7,000p TP.
According to Sky News, RIO is studying potential acquisitions including Teck Resources (NR). The article notes that a list of potential acquisitions has been drawn up but it remains unclear whether any offer would be made. Teck is considered the mostly likely copper asset to go next while the potential for aggressive MandA would be a shift for RIO. If there is ultimately a bid put forward for Teck, we expect BHP (=) would be likely to also get involved. Teck as a target makes sense In our recent meetings with clients, Teck Resources was the consensus pick to be the next acquisition target as miners look to increase copper exposure as the market gets further into a structural deficit. Having just completed its coal sale to Glencore (+), Teck''s EBITDA mix is now 85% copper and 15% zinc per 2025 Visible Alpha consensus. Its scale (2025 copper guidance of 550-620kt) is big enough to move needle and has greenfield and brownfield optionality longer-term. Count your blessings Any approach for Teck would need to be done on a friendly basis as Norman Keevil has effective voting control via his class A shares and the sunset agreement lasting another five years. In addition, last week Canada introduced new guidelines in which it would only approve foreign takeovers of large Canadian mining companies ''in the most exceptional of circumstances.'' Evolution not revolution Given the scale differences in the companies, a proforma TECK/RIO 2025 EBITDA mix would see copper increase to 32% vs 24% on standalone RIO basis. Copper is already a key pillar of the strategy with RIO so a conceptual deal would be doubling down in that aspect while iron ore would remain the primary earnings driver (see figure 1 overleaf). Attributable copper production of the proforma entity would be a top-3 producer globally and in-line with a Freeport (+), per our estimates.
The value of global commodity markets has dropped by over 20% since 2022’s record-high, down to our 2024 estimate of US$6.45tn. Is all over for Commodity World? Not at all. In fact, for most markets that we cover, demand growth remains stable, supply growth is moderating, and China-centred trade flows are remarkably robust. Here, we explain the cause of the pullback in the total value of these markets – Base/Precious Metals + Steels + Energy. From these levels, we expect the value to increasingly respond to the state of China’s stimulus-dependent economy, changes in the currently neutral US Fed’s cash rate policy, and the rise of geo-political tensions (priceDECK – Peak conviction, 26-Jun-24)…
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Post calendar 1Q24 production reporting, we update estimates for RIO (+) and BHP (=). RIO - no fireworks A largely stable set of results with 1Q24 production averaging 24% of annual mid-point guidance with no changes to guidance on production, capex or cash costs. Mined copper was a relative laggard as Kennecott was impacted by unplanned conveyor downtimes (now solved) and lower grades at Escondida. Conversely, refined copper was ahead of expectations as Kennecott returned to normal operations following the largest smelter rebuild in its history. Pilbara iron ore shipments were -5% y/y as a result of weather-related disruptions at the ports. As we integrate production results and make modest operational adjustments, our 2024 and 2025 EBITDA forecasts decrease by 1-2% but updated discount rates and risk premiums leave our TP at 6,700p (prev 6,690p). BHP - lowering BMA BHP was one of just a few miners which have reported stronger than expected copper production with +7% sequentially on the back of higher concentrator grade at Escondida and throughput at Spence, partially offset by lower volumes in Copper South Australia. The assessment remains ongoing whether to place Nickel West on care and maintenance and West Musgrave''s long-term future. BHP has noted a decision by FY24 results (August) though this wouldn''t preclude a decision sooner rather than later. Iron ore, similar to RIO, was softer than expected and the -7% q/q decline was driven by wet weather in the Pilbara, a bushfire near Yandi and the RTP-1 tie-in, partially offset by improved underlying performance. Coking coal (BMA) production was -9% vs cons and FY24 guidance was lowered again to 21.5-22.5Mt (prev 23-25Mt). We now forecast BMA at the mid-point of its new range, which is the primary driver of modest earnings revisions (FY24 and FY25 EBITDA -1%) and TP to 2,550p (prev 2,560p).
What’s hotter than Copper right now? Aluminium. Yep, this famously dull metal market has just reported a price spike on new short-term supply uncertainty. What’s happened? After many months of industry debate/lobbying – the CME + LME have just been told by their govts to stop trading in Russian aluminium-copper-nickel. Of these three metals, aluminium’s price response – up 10% since early April to US$2,600/t-$1.18/lb level – is the least sustainable…
Largely an unexciting update, not in a bad way. 1Q24 production averaged 24% of mid-point annual guidance across metals. As expected, there were no changes to 2024 guidance for production, capex, or cash costs. Please see a detailed variance table overleaf. Iron ore in-line with expectations Pilbara iron ore shipments (100%) were in-line with VA cons (-1.0%) but -5% y/y as a result of weather-related disruptions at the ports (vs. production -2% y/y), leading to a lower stock draw-down vs. the comparable period last year. IOC production was +3% y/y (in-line with cons.) and shipments were +25% y/y driven by improved rail and port availability and utilisation. Copper mixed, aluminium in-line Mined copper production of 156kt was -10% vs. cons. while refined copper was +10% vs. cons. The miss on mined copper was at both Kennecott (unplanned conveyor downtimes now solved) and Escondida (grade) with Oyu Tolgoi slightly ahead. Whereas the beat on refined was Kennecott as it returned to normal operations following the largest smelter rebuild in its history. Progress on the underground development at Oyu Tolgoi is progressing well and there were no changes to the timelines for the ventilation shafts, conveyor to surface works, or concentrator conversion. Bauxite, alumina, and aluminium production were 0% to -3% vs. cons. and the Kitimat smelter is back to full capacity. Outlook commentary RIO highlighted a strong manufacturing sector in China and weak property activity. While issuance of financing for infrastructure is continuing it is balanced against measures to restructure local government debt. Outlook is optimistic on the US and the Eurozone is expected to gradually improve over the year. This reads as a slightly more downbeat message on China vs. 4Q23 comments but more upbeat on the US.
With the confluence of looming supply tightness, structural demand growth tied to global GDP, energy transition demand tailwinds and now the prospect of demand growth tied to data centres, copper remains our preferred metal exposure. Freeport (+) remains our top pick amongst the copper miners, and we increase our TP +20% today. Upgrading copper price forecasts We see incremental tightness in the global copper market, detailed alongside our S/D model in this report, leading us to increase our price forecasts to USD 9,250/t in 2024 and USD 9,750/t in 2025 (vs spot USD 9,282/t), increases of +8% on average vs our prior forecasts. We would argue our price forecasts remain conservative as we are, by our estimation, in the second year of a deficit that will be difficult to climb out of. Approval of greenfield copper production in 2023 was the lowest on record (back to 2007) and will only exacerbate supply concerns towards the back end of the decade. Tight supply 2024 now looks firmly in a deficit (BNPPE 270kt). This should ease somewhat in 2025 (BNPPE 113kt deficit), but that assumes the resumption of production from Cobre Panama, which undoubtedly still carries its own downside risk. While we still forecast Chinese consumption to increase y/y in 2024 (+3.0%), it would struggle to match the very strong growth seen in 2023 (+7.6%). We expect DM demand to improve in 2024, particularly from H2 onwards. Ways to play A rising tide lifts TPs and earnings estimates for copper producers, while lower annual TCRC assumptions for 2025 (USD 50/t) cut both ways for smelters. Amongst primary copper producers, Freeport remains our preferred name with strong FCF inflection through 2025, a clean balance sheet, and unique upside to gold by-products with spot trading USD 2,300/oz. A standalone note today looks at the potential USD 15bn opportunity in Phases 2 and 3 of its leaching initiatives.
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We hosted 19 Metals and Mining companies at our 19-21 March event. Sentiment over China remains negative but primarily limited to the housing (i.e., iron ore) market, while copper continues to be the topic du jour. Balance sheets are strong which limits downside risk vs. past cycles although capital allocation is shifting from shareholder returns towards capex (inflation + select brownfield growth). Our preferred names are Freeport (+), Rio Tinto (+), Newmont (+) and Glencore (+). China sentiment weak but need to be differentiated by end market Housing data continues to be weak and there is consensus that a solution has yet to be found to put the bottom in on sales and new starts. The February completion figure (-20% y/y) raised concerns and will be closely watched to determine if this was a single data point or a weakening theme. However, the ''Whitelist'' scheme, aimed at funding unfinished projects should continue to support completion activity which also happens to be very Q4 weighted (50%). FAI grew +4.2% y/y combined in Jan/Feb with Manufacturing growth (+9.4% y/y) supported by high-end manufacturing and high-tech services, while solar and wind investments (+46.4% y/y and +17.7% y/y) continue to grow rapidly. Copper shining through Copper exposure, regardless the size, was a prominent focus in the meetings. MandA was being talked down, not because of lack of appetite but the view that anything of quality coming to market would be a very competitive bidding process. Growth ambitions continue to focus on brownfield vs greenfield, while the latter is constrained by a lack of quality assets in the pipeline. What did we learn? Cost inflation still a concern Notable, industry-wide project cost overruns and increase in capex estimates for brownfield options has caused several companies to recently delay investment decisions, which will only exacerbate the medium-term supply deficit in copper. Labour tightness continues to be called out with inflationary...
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What happened? Metals and mining companies attending day two of our 19th annual Transitioning Materials Conference were Acerinox (+), Anglo American (=), Antofagasta (-), Aperam (+), Boliden (=), Freeport (+), Outokumpu (=), Rio Tinto (+), South 32 (-) and Voestalpine (=). BNPP Exane View: Freeport (+) - Confident message on export license and leaching growth Confident on discussions regarding a mine license extension beyond 2041 which will allow PT-FI (Grasberg) to be optimised for a longer life of mine, rather than just the next 15 years, and open up optionality for more underground exploration work where they are confident there is more ore to be found. Relationship with government is strong and best it has ever been. Leaching is the best growth option for them as it is low cost and there is abundant resource amenable to it within their portfolio, especially relative to peers. Labour tightness remains, especially in the US, and is one driver of the decision to take a slower decision with Bagdad expansion. Rio Tinto (+) - Targeting steady growth with copper at the forefront Simandou is six months into construction and will take 30 months to ramp up, once complete. Chinese partners there are adept at railroad construction, but potential pressure point on timeline would be customs clearance to bring all the material in for construction of the project and associated infrastructure. Labour tightness remains an inflationary pressure across multiple regions. Progress at Oyu Tolgoi remains positive and will be the biggest lever for reaching their target of doubling group copper production by the end of the decade. Resolution, even if given the green light tomorrow, wouldn''t be producing in this decade. Acerinox (+) - Constructive on the US inflection, mitigating strike impact in Europe There have been no signs of restocking yet with EU apparent demand unlikely to improve before the summer. We note that Acerinox can leverage its global footprint to...
RIO ACX ACX OUT1V VOE VOE AAL FCX FCX ANTO BOL BOL APAM S32
We have adjusted our estimates. We do not consider the changes to be material; our rating is unchanged. We have made small adjustments to the minority interest calculations.
Results wrap RIO delivered a boring but good 2H23 results. EBITDA was largely in-line with expectations, 2024 cash cost guidance for iron ore and copper is unlikely to move consensus and a final divi of USD 2.58/sh was slightly ahead of consensus. Please see our detailed breakdown of results here. Copper ramp progressing 2023 copper production of 620kt increased +2% y/y with a further step up into 2024 (+11% at the mid-point). The higher volumes will also help lower unit costs, forecast to decline -23% y/y at the mid-point under newly issued guidance. The Oyu Tolgoi underground ramp-up continues to progress well with just USD 1.0bn of capex remaining (vs USD 7.1bn total capex), which will help boost FCF generation in the copper division moving forward. Remaining items at the mine are shafts 3 and 4 and the conveyor to surface (2H24), concentrator conversion (2Q25) and completion of primary crusher 2 (end 2025). Aluminium operations improving RIO achieved aluminium production of 3.3Mt in 2023 (+9% y/y), returning to full capacity in Kitimat and completed cell recovery efforts at Boyne during 3Q23. RIO, and its JV partner Alcoa, continue to advance Elysis, its zero-carbon aluminium smelting technology and key lever in the broader group''s roadmap to net zero. Estimate revisions Revisions to our earnings forecast are nonmaterial and thus our TP remains at 6,600p (Outperform). On a y/y delta, we expect Copper to deliver the bulk of the earnings growth, driven by volumes, lower unit costs and some stronger metal pricing. The division, on our estimates, will nearly double EBITDA y/y in 2024 and along with improved performance in Aluminium, will more than outweigh a modest decline from Iron Ore.
A largely in-line PandL result, albeit some puts and takes, with the divi slightly ahead of expectations. 2024 production guidance was reiterated and newly issued cash cost guidance for iron ore and copper is unlikely to materially move consensus EBITDA. A results presentation will be hosted this morning (21st February) at 8am UK time. Please see detailed variance table overleaf. In-line PandL, stronger divi RIO reported 2H23 underlying EBITDA of USD 12.2bn, -1% vs Visible Alpha consensus. Iron ore reported underlying EBITDA of USD 10.2bn, in-line with consensus while other divisions lagged along with a lower negative across the various ''other'' lines vs a less robust consensus figure. Final divi of USD 2.58/sh was +6% ahead of consensus. Operating cash flow (-6%) and FCF (-15%) missed expectations, leaving net debt of USD 4.2bn (0.2x LTM underlying EBITDA) +47% above consensus. Cash cost guidance largely in-line 2024 production guidance, which was announced with 4Q23 production results, was reiterated. 2024 cash cost guidance is new with Pilbara unit costs guided to USD 21.75-23.50/t (mid-point +2% vs cons) and copper C1 unit costs of USD 1.40-1.60/lb (mid-point -6% vs cons). Pilbara unit costs are expected to increase y/y due to work effort in the mines and labour and parts inflation in Western Australia while copper unit costs are expected to decline y/y driven by higher volumes. 2024 capex guidance for up to USD10bn was reiterated. Outlook commentary Inflation has eased but its lag effect on contractor rates, consumables and some raw materials, will only see it stabilise in 2024. Labour tightness remains an ongoing theme in Australia, USA and Canada. RIO continues to target first production from Simandou in 2025 with a 30-month ramp up to reach its attributable share of 27Mtpa.
Today's news and views, plus announcements from: RIO, QLT, HOC, EZJ, ABDN, JDW, & MEN.
RIO QLT HOC
Today's news and views, plus announcements from: RIO, OCDO, VOD, EXPN, SPT, PDL, THG, CARD, WISE, & Panmure Liberum Merger.
Rio Tinto plc Petra Diamonds Limited
With 2023 guidance reiterated at the December CMD and 2024 announced at that time, it was unlikely today''s result would bring material surprises. All metals ended within their guidance ranges with normal deltas vs consensus on a quarterly basis. Please see variance table overleaf 4Q23 wrap Considering RIO reiterated its 2023 production guidance in early December, we weren''t expecting any fireworks from today''s release. All metals finished 2023 within the most recently provided guidance range. Pilbara shipments (100% basis) were 86.6Mt, in-line with consensus. Aluminium (+2%) and bauxite (+6%) were both ahead of consensus. Copper was generally weaker as mined copper of 160kt was -6% vs consensus but just -1% vs our more conservative estimates. Refined copper of 46kt was -15% vs consensus and -11% vs our estimate. Escondida was -9% q/q on lower recoveries and grade and was the primary driver of the miss at both the mined and refined level. 2023 guidance for Pilbara unit cash costs was reiterated at the lower half of the USD 21.0-22.5/t (BNPPE USD 21.5, consensus USD 21.6). Copper C1 unit cash costs are now expected to be in the upper half of the USD 1.80-2.00/lb range though expectations were already for a more elevated figure (BNPPE USD 2.16/lb, consensus USD 2.04/lb). 2024 guidance unch as expected Similarly, the 2024 guidance was only just a month old and with just half a month of production, revisions to 2024 were unlikely. RIO is targeting selective growth across its commodity mix with refined copper +40%, mined copper +11%, IOC +10% and alumina +3% as comparing the mid-point of 2024 guidance to 2023 actuals. Unit cost guidance for 2024 will be announced at the 2H23 financial results on 21 February 2024. We are forecasting 2024 iron ore unit cash costs of USD 22.2/t, +1% vs consensus and 2023''s guidance range of USD 21.0-22.5/t. 2024 copper C1 unit costs are forecast USD 1.73/lb, +6% vs consensus and 2023''s guidance range of USD 1.80-2.00/lb.
2024 production guidance largely in-line There was no change to 2023 production guidance vs what was communicated at 3Q23 production results. RIO''s 2024 production guidance was largely in-line with expectations for its major metals - iron ore (Pilbara), copper and aluminium (incl. alumina + bauxite). Capex guidance for up to USD 10.0bn for 2024-2026 (previously 2024-2025) with growth capex of up to USD 3.0bn per annum (unch), dependent on final go ahead on Simandou. Simandou - with or without us RIO''s view is that the massive Guinean iron ore project (120Mtpa capacity once ramped for block 1-4) will be developed with or without them. The reserve estimate of 1.5bn tonnes grading 65.3% Fe supports a 26-year mine life, something highly likely to be extended given the 1.4bn tonnes grading 66.1% Fe in resource excluding reserves. RIO targets first ore in 2025 and a 30-month ramp up to reach its attributable 27Mtpa production target. Pilbara shipments (100%) mid-term target of 345-360Mt requires 130Mtpa of replacement capacity to offset 90Mt of depletion from five projects with first ore targeted between 2025 and 2028. Oyu Tolgoi ramp continues to progress well No change to Oyu Tolgoi''s targets and more datapoints supporting a ramp-up progressing well. A total of 83 drawbells have been blasted, ahead of schedule. The underground project is 92% complete and 95% of estimated capital has been committed. At Kennecott, the mine will fully transition to renewable diesel from 2024, saving 0.5Mt of CO2 per annum, equivalent to annual emissions of 107,000 passenger cars. Nuton, RIO''s leaching technology, has 6 partnering mines across 4 countries and is showing promising recovery rates (85%) vs conventional concentrating/smelting (20-30%) but it''s still too early to put any economics around it.
Upgrading iron ore price forecasts The absence of steel production cuts and mills light on inventory, especially ahead of a seasonal steel restocking cycle into Chinese New Year, paints a brighter few quarters for iron ore coming up. Our revised numbers now point to a 9Mt deficit in the seaborne export market in 2023, 15Mt surplus in 2024 and 34Mt surplus in 2025. We raise our price forecasts by +6% for 2023 (USD 120/t), +18% in 2024 (USD 106/t) and +13% in 2025 (USD 90/t). We base this on a scenario of China prioritising GDP growth and infrastructure spending, some stabilisation in real estate in 2H24 and the absence of a steel production cap leaving steel exports elevated. See our 2024 Outlook published today. 2024 EBITDA +16%, pricing in lowest iron ore price amongst diversified miners Changes to our iron ore deck are the biggest driver of estimate revisions with 2024 and 2025 EBITDA upgrades of +16% (+5% vs consensus) and +12% (-4% vs consensus). We estimate RIO currently pricing in USD 86/t, more than USD 10/t less than its diversified peers, offering relative value and well below spot at USD 133/t. Mid-single digit dividend yield with strong upside at spot We expect shareholder returns to remain competitive (6% yield average 2024/2025) with upside if iron ore prices sustain above our expectations. Assuming iron ore prices hold at elevated spot levels, the yield could rise to nearly 10%. A 4% yield could be achieved with iron ore down to USD 80/t. Upgrade to Outperform With our revised iron ore deck, and thus EBITDA forecasts, we now see double digit upside in valuation. Oyu Tolgoi ramp-up is progressing well, positive for group ambitions to double copper production by the end of the decade, although iron ore will remain 50% of EBITDA through that period. Upgrade to Outperform (from Neutral) with TP of 6,500p (prior 5,880p).
Sequential growth in 3Q23 production RIO delivered sequential production growth in 3Q23, aside from titanium dioxide slag, and left 2023 guidance unchanged outside of IOC''s pellets and concentrates, which has been revised lower for a second consecutive quarter. Pilbara shipments increased +6% q/q with SP10 a larger proportion of shipments and expected to amount to 45-50Mt (13-15%) for 2023 volumes. RIO continues to expect 2023 shipments in the upper half of the 320-335Mt guidance range (BNPPE: 331Mt). Mined copper increased +17% q/q with the Kennecott concentrator recovering from the conveyor failure in March 2023. Diamonds, having already achieved 89% of the low-end of 2023 production guidance looks the most derisked while IOC, despite two guidance cuts already, is the least at 70% of the low end of the guidance range. Pilbara takeaways The recent Pilbara visit focused on RIO''s ambitions to increase iron ore shipments +7-8% to 345-360Mt over the mid-term while decreasing unit costs to USD 20/t on higher volumes and efficiencies more than offsetting a more difficult mining work index. Gudai-Darri ramp has progressed well, achieving nameplate (43Mtpa) within 12 months of commissioning and phase 2 (incremental 7Mtpa) is expected by 2025. Estimate revisions We update for 3Q23 production results which leads to marginal revisions on 2023 (unch) and 2024 (-3%) EBITDA forecasts. Despite the minor downgrades, we increase our TP to 5,880p (prior 5,730p) on lower discount rate to reflect the latest risk-free rate and equity/country risk premiums. We continue to derive our TP via a 50/50 weighting of ROCE/WACC and DCF. Detailed table of estimate revisions can be found later in this report.
Today's news and views, plus announcements from: RIO, RR., STJ, BWY, BBOX, MONY, SRP, PDL, & SHOE.
Pilbara tracking at upper end, IOC needs to catch up Pilbara shipments in 1H23 have been strong, with five consecutive quarters of improved operational performance, and RIO targeting the upper end of guidance 320-335Mt (BNPPE: 331Mt) and further sequential growth in 3Q23 and 4Q23. Conversely, IOC has only achieved 46% of the lower end of FY23 guidance in 1H23 as it effectively lost one month of production due to wildfires in Quebec. We forecast +23% h/h growth in 2H23 for IOC which would still leave it at the bottom end of guidance at 10.2Mt (guidance 10.0-11.0Mt). Focus on iron ore with Pilbara visit nearing On 9-11 October, RIO will be hosting a visit to the Pilbara, focused on port and rail operations, the Gudai-Darri mine and Rhodes Ridge Project. Similar to the visit to Oyu Tolgoi in July (our takeaways here), we don''t expect any radical deviation in strategy but rather a continuation of the strategy of increasing quality tonnes in a measured approach. Gudai-Darri achieved nameplate capacity during 2Q23, helping to offset depletion in other parts of the portfolio. At Rhodes Ridge, an Order of Magnitude study is due to be completed by year-end, envisaging a 40Mtpa initial plant capacity. The project''s total resources (100% basis) are 6.7bn tonnes grading 61.6% Fe, equivalent to 1/3 of RIO''s existing resource base in the Pilbara. Development would help to secure high-grade iron ore production for RIO for decades. Earnings and TP increased on iron ore revision Infrastructure spending in China looks set to accelerate in calendar Q4 after the increase in government financing just reported, which should help stabilise economic trends. Delayed steel production curbs have supported iron ore. We now forecast 2023 and 2024 iron ore of USD 113/t and USD 90/t (prior: USD 105/t and USD 85/t) to reflect the higher starting point: as a result, our EBITDA forecasts are increased by +8% and +7% in 2023 and 2024 respectively. But we continue to see...
Today's news and views, plus announcements from: RIO, AHT, CLDN, MEN, TIFS, ECOR, CRW, SRC, & VNET.
RIO ECOR VNET
Today's news and views, plus announcements from: RIO, BNZL, IGG, BYG, & DXRX.
Rio Tinto plc Diaceutics Plc
Today's news and views, plus announcements from: RIO, GCP, MYI, RMII, FBH & EMIS.
Iron ore performed well in 1H23 while copper faced headwinds from poor performance at Kennecott. Both are targeting stronger h/h volumes but whereas iron ore is looking to build on strength, copper is trying to regain its footing. WC alleviation will support H2 FCF but be capped by a material step higher in capex. 1H23 wrap Very much an in-line result vs consensus with Pilbara unit cash costs at the low end of the full-year range in 1H23. FCF was ahead of expectations despite a well flagged USD 0.9bn WC headwind, which should mostly unwind in 2H23. Please see our more detailed breakdown here. Most vs least de-risked production into H2 Diamond guidance for 2023 (3.0-3.8mcts) is -27% y/y at the mid-point as an underground pipe and area of the open pit at Diavik was completed in 1H23. Guidance looks to be sufficiently rebased as 1H23 diamond production has already achieved 64% of the low end of 2023 guidance. Conversely, IOC has only achieved 46% of the low end in 1H23, but having lost effectively one month of production due to wildfires in Quebec there is a clear pathway to catch up assuming no further material disruptions. Pilbara shipments have been strong, having achieved five quarters of improved operational performance, and RIO is targeting the upper end of guidance and further sequential production growth in 3Q23 and 4Q23. Estimate tweaks Post results we trim 2023 and 2024 EBITDA forecasts by -3% and -1%, predominantly driven by downgrades in Minerals and with some offset in Aluminium. Our volume assumptions are left unchanged as we had updated post 2Q23 production results for the respective revisions to guidance. Updated assumptions feeding into the discount rate drives a small TP upgrade to 5,420p (prior 5,260p) which we continue to derive via 50/50 weighting to NPV and ROCE/WACC. Revisions table can be found overleaf. Reiterate Neutral.
Rio reported weak H1 results due to commodity pricing headwinds. This wasn’t surprising as the Chinese rebound has been disappointing. While the way forward isn’t easy – as China has serious issues at hand, by virtue of its legacy over-exposure and enviable competency in mining the key steel-making ingredient, the Iron Ore division is a cash-cow, which can help (partly) compensate for issues in other divisions and also facilitate a good balance between growth investments and rewards. Overall, a strong fossil-free diversified mining bet.
RIO reports 1H23 results pre-market on 26 July. Our 1H23 underlying EBITDA forecast of USD 12.4bn is +3% ahead of consensus while our FCF forecast of USD 3.0bn is -23% vs consensus, as we integrate the guided WC headwinds from 2Q23 production results. Ahead on EBITDA, conservative on FCF Into 1H23 results, we forecast underlying EBITDA of USD 12.4bn, +3% ahead of Visible Alpha consensus. Despite this, our FCF estimate of USD 3.0bn is materially below consensus of USD 3.9bn (-23%). This is principally driven by the integration of a USD 900m WC headwind, guided to alongside 2Q23 production results, reflecting among other items an increase in blasted and mine stocks in Pilbara. We expect consensus FCF estimates will decrease into the print as this is taken into account. Net debt is forecast +USD600m vs December year-end to USD 4.7bn. We forecast an H1 divi of USD1.93/sh (consensus USD 1.87/sh), implying a 50% payout of underlying EPS. Slower start to the year for copper Ramp up of the Oyu Tolgoi underground is progressing well (see our site visit note here) but operations at Kennecott have faced headwinds in H1 from a conveyor failure in March 2023 leading to reduced operating rates at the concentrator. Escondida has also had challenges from unplanned maintenance and crusher and conveyor availability. We forecast 1H23 copper C1 unit costs to be slightly above the top-end of full-year guidance range (USD 2.02/lb vs USD 1.80-2.00/lb range) before declining in 2H23. Minor revisions post 2Q23 production results We update our model for 2Q23 production results and alongside minor forward operational adjustments. We revise downward 2023 and 2024 EBITDA forecasts by -4% and -2%. Our 2023 cost assumptions are now in the upper half of respective guidance ranges; iron ore Pilbara cash costs of USD 22.3/t (guidance USD 21.0-22.5/t) and copper C1 cash costs of USD 1.91/lb (guidance USD 1.80-2.00/lb). Reiterate Neutral rating and 5,260p TP.
Iron Ore World’s monster miners have just finished a busy week reporting their production results. Vale + Rio Tinto + BHP (+ Anglo American) – which together deliver ~1Bnt/yr of ore to the seaborne market (65% of total) – all managed to hit-or-better production/sales guidance. Here, we list key comments made by CEOs + flag how these results stack up against our forecasts + roll through the seaborne ore trade’s current collection of market signals…
While RIO''s Pilbara shipments are now targeting the upper half of 2023 guidance range, other metals are facing headwinds. Volume guidance was cut for alumina, refined copper, IOC and the lower end of range now targeted for bauxite and titanium dioxide slag. Copper C1 cost guidance revised higher. Pilbara in-line with plan RIO reported Pilbara iron ore shipments (100% basis) of 79.1Mt, -1.7% vs Visible Alpha consensus. Gudai-Darri achieved nameplate capacity during the quarter while shipments faced headwinds from planned major maintenance at the port of Dampier and a train derailment. Despite that, RIO now forecasts shipments to be in the upper half of the 320-335Mt guidance range (consensus: 331Mt). Cash cost guidance for iron ore unit costs remain unchanged at USD 21.00-22.50/t. Conversely, RIO''s Canadian operations (IOC) have struggled with 2Q23 pellet and concentrate volumes of 2.1Mt (-24% vs consensus) and 2023 volume guidance cut to 10.0-11.0Mt (consensus: 10.8Mt, prior 10.5-11.5Mt) due to wildfires in northern Quebec which led to 3.5 weeks of lost production. Copper headwinds 2Q23 mined copper production of 145kt was -2.2% vs consensus while refined copper production of 36kt was +3.4% vs consensus. While Oyu Tolgoi''s ramp-up was a tailwind, this was more than offset by continued lower operating rates at Kennecott''s concentrator and unplanned maintenance and lower crusher and conveyor availability at Escondida. 2023 mined copper production guidance is unchanged but refined copper guidance was cut -12.5% at the mid-point to 160-190kt (consensus: 197kt, prior: 180-210kt). The same underlying driver, the extended Kennecott smelter rebuild also drove an increase in guided copper C1 cash costs to USD1.80-2.00/lb (prior USD 1.60-1.80/lb). Mixed performance in Aluminium 2Q23 production of bauxite 13.49Mt (-2.6% vs cons), alumina 1.86Mt (-4.9% vs cons) and aluminium 0.81Mt (+1.5% v cons). Guidance for bauxite now expected to be at lower end of...
A visit to Rio Tinto''s Oyu Tolgoi copper mine in Mongolia left us more confident in the ramp up of underground operations which commenced in 1Q23. Drawbell firings and undercut firings are running ahead of plan while associated infrastructure (shaft sinking and conveyor to surface) is progressing well. RIO''s ambitions to double copper production by end of decade rely heavily on the successful execution of underground mining at Oyu Tolgoi. Drawbell firing rate ahead of industry average Drawbell firings are ahead of 2023 YTD plan (54 opened as of 30 June 2023) and for the last five months averaging 6 per month vs industry average of 4-5. Similarly, undercut firings are ahead of plan and aligned to drawbell firings. Cave construction is outperforming RIO''s expectations and sustaining development metres and ore tonnes hoisted are both ahead of 2023 YTD plans. These all read positive for the ramp-up of underground operations. Hugo North Lift 2 is expected to be in the resource model mid-2024 while early-stage evaluation of potential downstream processing at Oyu Tolgoi is progressing. Underground infrastructure progressing well Solid progress is being made in the supporting infrastructure for underground operations. Shaft 3 and 4 commissioning is in 2H24 (52% and 60% complete) and recent monthly run-rates are ahead of the pace required to meet those timelines. The conveyor to surface (51% complete) is to be commissioned in 2H24. Mining and Mongolia The mining industry is critically important for Mongolia, representing 28% of GDP. Since 2011, c50% of total foreign direct investment into the country was the investments into Oyu Tolgoi. Mining is 93% of Mongolia''s total exports and while the largest is coal at 52%, copper (predominantly Oyu Tolgoi and then Erdenet) is still 22%. The next parliamentary election is June 2024.
A mining company the size of Rio Tinto requires long periods of time to structurally change its metals mix. With Oyu Tolgoi underground commissioning and ambitions to double group copper production by the end of the decade, Rio Tinto is embarking on this journey. But iron ore will be the dominant driver of the PandL for some time, remaining 60% of EBITDA medium-term.
A mining company the size of Rio Tinto requires long periods of time to structurally change its metals mix. With Oyu Tolgoi underground commissioning and ambitions to double group copper production by the end of the decade, Rio Tinto is embarking on this journey. But iron ore will be the dominant driver of the PandL for some time, remaining 60% of EBITDA medium-term. We transfer coverage of Rio Tinto to Alan Spence, reiterate a Neutral rating and 5,260p TP. Quantifying Oyu Tolgoi''s Importance We''re visiting RIO''s Oyu Tolgoi mine the week of 10 July, the company''s key lever for growing copper exposure. Underground commissioning was achieved in 1Q23 and prioritising its higher grade ore (3x vs open pit) is a key factor in driving the mine''s average copper production from c340ktpa till 2027 to c500ktpa in 2028-2036 with a peak year of 600kt. RIO''s 66% share in Oyu Tolgoi is 10% of our NPV before corporate adjustments. At the site visit, we expect RIO will look to provide confidence over the timing of panels 1 and 2, shafts 3 and 4 (expected commissioning in 2024), total capex and any potential changes in the production/cost schedule laid out in the 2020 Feasibility Study. Early stages of copper growth but a re-rating will need to wait While a successful ramp up of Oyu Tolgoi will be key if RIO is going to succeed in its target of doubling copper production by the end of the decade, the equity is unlikely to draw a copper multiple. We forecast copper reaching 21% of group EBITDA by 2025 and 27% vs 2030 (vs 9% in 2022), while iron ore remains 60% of EBITDA in the medium-term and the primary driver of the PandL. Downside risks to Iron Ore create potential headwind to dividend We published takeaways from our recent China trip (here). While we came away more constructive on EVs, renewables and home appliances, the housing sector is struggling with fears of a double dip in resi and record high vacancies in non-resi. We see downside risk to iron ore...
Iron ore heading towards a lower equilibrium price from H2 onwards. A price taker market On the back of our most recent field trip to China, we downgraded our crude steel production forecast to -2.1%, with real estate steel demand (30% weighting) now set to decline by -16% y/y on our numbers, more than offsetting growth in other markets. Steel production curbs are on the cards in H2 after steel margins were hit. We forecast an 84mt surplus in the seaborne export market in 2023 (5.5% of global seaborne trade). The cost/price support from domestic production in China is likely to wane as these marginal low-grade tonnes will not be needed, and as steel mills will pivot towards a higher-grade mix to support their decarbonisation targets. Our excess supply estimates suggest an USD80-100/t range would be a justifiable level (below current spot at USD115/t CFR), until the large Simandou project ramps up (2025-2027) and displaces more high-cost tonnes. Current prices have been distorted by large speculative positions in iron ore futures used as a hedge against the weaker RMB. We favour exposure to Base Metals (Copper, Aluminium) over Iron Ore structurally. Iron ore majors discounting lower iron ore prices, but differ on their degree of diversification BHP Group''s exposure is already more diversified with c.57% of its EBITDA in CY2023e from iron ore and balanced on a mid-cycle basis before potash should bring more dilution. Rio Tinto''s c.71% EBITDA dependency on iron ore is high. While Oyu Tolgoi will help, further diversification efforts will be needed in the future. Vale''s c.82% EBITDA exposure to iron ore is more problematic. Admittedly, the group''s growth strategy in high-grade aggregate products should yield a premium, but it is a premium over a surplus market. Upgrading BHP to (=), downgrading Vale to (-), Rio Tinto unchanged at (=) BHP''s productivity efforts have yielded visible results on unit cost, even if not immune to inflation. Our...
RIO BHP VALE
The Restocking Indicator is having a bearish year. The signal has reported a SELL, or very close to it, since late January. This month saw the sharpest new orders contraction since last July. Mills remain firmly in destock mode; China’s reopening trade continues to disappoint; confidence in real estate is weak. We still expect market signals to define floors in H2, with upside risk building later in the year – most likely on 2024’s industrial restock.
RIO GLEN AAL ANTO
The Restocking Indicator has switched to a SELL, after flirting with this threshold over the last two months, reflecting a deterioration in China’s industrial activity. It seems that China’s post-lockdown bounce for steel was just a seasonal uptick. Key factor here being that China’s industrial base was never really impacted in H2’22 vs. H1’20 (first lockdown). And now, demand is slowing faster than we would expect for this time of year (Miner’s equityDECK - Fading Bears (44 pgs)). We continue to expect a general commodity price floor to form in H2’23.
RIO AAL GLEN
It’s late April – typically the peak of the China-dominated seasonal restocking cycle for iron ore’s seaborne trade. Landed prices for China’s imports should be relatively high right now + stable for at least the next 2-3 months. Instead, China’s Dalian exchange has reported a general 20-25% price slide over the last 6 weeks, with landed fines’ futures dipping below US$100/t this week – the lowest level since Dec-22. Yes, we’re ore price bears, but the speed/timing of this sell-off is a surprise to us. Is the price drop supported by signals elsewhere in China’s rust industry? Here, we review the state-of-play in the ore/steel trade + list short-term price drivers + explain our latest S/D/price forecasts…
Today's news and views, plus announcements from: HLN, REL, RTO, RIO, SGRO, AJB, BAB, DNLM, FAN, SMWH, DELT, GHE, MTW, ROO, & PAY.
The Restocking Indicator stays on HOLD, and so matches up with our short-term expectation that iron ore prices will be range bound for the next couple of months. There has been an improvement in domestic demand, but no post-lockdown ‘fireworks’ in play. Certainly not enough to get China’s steel mills, or us, excited on the short-term steel/ore outlook. Worth keeping an eye on rising pollution levels, for this could prompt policy action and lift lump/pellet/high grade premiums – bullish for AAL/FXPO.
RIO AAL GLEN ANTO FXPO
It’s all happening, over in China. Based on Feb-22’s PMI data, economic activity has bounced out of lockdown-lows (again), an event that is coinciding nicely with China’s vast industrial base’s post-winter seasonal uptick. Got lots of excited investors asking us what the China-related upside risk is now, for the seaborne rust trade (China takes >70% of total trade). Problem is, for investable upside in China’s imports/prices, we need its central govt. to remove a perennial cap on the country’s total annual steel production rate (capped at previous year’s output, since 2021). Perhaps they’ll do that this year – just to support broader economic activity, and get to its brand new 5.0% growth target? Here, we test our iron ore model with 3 x crude steel output rate scenarios for China vs. our Base Case…
Today's news and views, plus announcements from: FRES, RIO, WPP, GRG, IWG, SPT, CYAN, DUKE, & SED.
Rio Tinto plc Saietta Group PLC
The Restocking Indicator has upgraded to HOLD, after reporting a sell last month. Domestic demand has improved, although it is still being outpaced by the expansion in finished inventories. We believe a neutral sector call is sensible, ahead of China’s National People’s Congress this weekend. This annual event typically features the central government’s growth strategy for the year. Note, we do not expect stimulus fireworks, given the demand recovery reported over recent months. Statements on post-lockdown growth consolidation, stabilising consumer growth, protecting the economy from ‘external threats’, etc. seem more likely to us.
RIO AAL GLEN ANTO
Due to pricing normalisation for all focus base metals, Rio witnessed a sharp 2022 operating performance moderation – which was worse than expected. Even though prices have recovered recently – thanks to China’s re-opening euphoria, sector-wide (cost) challenges are likely to persist/aggravate. Luckily, via a bigger dependence on high-margin iron ore, aluminium differentiation (vs. peers), good progress on copper ambitions and promising diversity/growth initiatives, Rio remains one of our preferred diversified miners. Although, our stock recommendation, with limited upside, should be maintained.
Today's news and views, plus announcements from: RIO, LLOY, PHP, TRIG, & FUTR.
Rio Tinto plc Primary Health Properties PLC
Our Restocking Indicator remains on HOLD for January, as inventories outpace a recovery in domestic demand. No, we don’t see another post-lockdown recovery trade. Still, there’s news that China may be softening its “three red lines” for its real estate developers. Given how quickly the government backflipped on zero-COVID, this latest event could be a meaningful re-boot for construction too. Perhaps houses are for speculation again? Even if this were true, it will be difficult to convince buyers to re-engage, after the troubles of 2022. We maintain our neutral sector stance.
RIO GLEN AAL ANTO FXPO
Yesterday, the govt. of Indonesia announced that the country’s 20Mtpa of bauxite exports would be banned from June next year. It’s the latest adjustment to a general trade policy that has been in place since 2014, which restricts the export of unprocessed minerals from Indonesia – a key source of bauxite, nickel, tin, copper and thermal coal. Some investors are surprised by this report, since Indonesia is already under EU-prompted WTO pressure to reverse its similar ban on nickel-bearing ore exports. Here, we give Indonesia’s bauxite exports some global context + explain the risks for downstream oxide/metal /equities...
According to Bloomberg, China is close to deploying a brand new, locally based (i.e. state-owned) ore pricing platform – China Mineral Resource Group. It’s not an overnight thing; been working on it for years; key point in Bloomberg’s report = agency is now talking with seaborne’s ore mining-Majors RIO-BHP-VALE. Here, we explain: 1. the motivation for China to create this agency; 2. why/how ore trade conditions are likely to change over the longer term, with CMRG’s roll-out; and more specifically, 3. why CMRG probably creates an incentive for iron ore’s long-dormant oligopoly to develop a joint supply strategy (Iron Ore – Games we play, 15-Sep-22).
After three months of reporting BUY, our Restocking Indicator has finally switched to a Hold for December, thanks to a fall in China’s domestic demand. We were suspicious of September’s surprise upgrade (see here). Turns out, China’s steel production rate really did lift on a demand recovery. The sector’s been up 20.1% since then. Anyway, from here, we move into a seasonally strong period for iron ore’s trade: wet season-hit supply and restocking mills – prompting a short-term bullish bias. Key risk? An extension to China’s zero COVID policy in 2023.
RIO AAL GLEN FXPO ANTO
Today's news and views, plus announcements from: SMDS, LGEN, RIO, BOY, LIO, YNGA, & GLE.
Today's news and views, plus announcements from: RIO, GSK, NXT, MGNS, HSX, GROW, AML, WIZZ, SMD, & FDEV.
Rio Tinto plc Spectral MD Holdings Limited
This week’s China data dump – GDP quarterly + Sep-22 monthly numbers – belatedly delivered post-20th Congress, offered little for investors to be optimistic about. Real estate has yet to show any signs of inflection, and is unlikely to do so until house prices somehow stabilise. Infrastructure continues to be the bright spot, particularly in utilities. But how far can local government stretch the balance sheet to support this sector, given falling land sales. Only meaningful takeaway from last week’s leadership congress is that Xi’s ‘yes-men’ are now entirely in charge. For this new-look central government – it seems that political expediency is more important than high quality economic growth.
Today's news and views, plus announcements from: RIO, AVV, PAGE, 888, MONY, JET2, ORPH, CYAN, & FARN.
Today's news and views, plus announcements from: RIO, MSLH, PRTC, JDW, SOLG, DNL, SND, & ACQ,
Iron ore’s mining Majors have not made a big strategic decision on supply growth for over a decade, despite reporting super-profits. But things are changing. China is busily developing its own ore supply options, including the giant Simandou mines. Why? China is convinced that the Big-4 – Vale, Rio Tinto, BHP, FMG – possess significant ore pricing power. Is this true? Here, we review five separate S/D/price scenarios to determine if alternative strategies deliver better returns for key players. We have also revised our production forecasts for Rio’s Simandou/Pilbara mines.
RIO AAL FXPO
Today's news and views, plus announcements from: AHT, SMDS, RIO, CNE, BYG, AMTE, AMRQ, AVAP, PEBB, UBG, INL & AVAP.
Rio Tinto plc Avation PLC
Today's news and views, plus announcements from: RIO, RKT, WPP, SEIT, KNOS, AWE, 1SN, AVCT, APP, DOTD, BOOM, & AMRQ.
RIO SEIT AVCT APP
Finally, Rio has managed to convince THR’s shareholders, and eventually tightened its grip on the highly-promising Oyu Tolgoi copper asset. In effect, the firm is on course to realise its underlying copper potential. Even though worsening Chinese growth risks are likely to take a further toll on iron ore-heavy miners, the likes of Rio, which also has valuable business diversity via aluminium and ample balance sheet cushion, remains worthy of a re-rating.
China’s steel industry is in sharp contraction on all fronts, responding to collapsing domestic demand. Persistent data weakness has prompted our Restocking Indicator to report its fourth sell signal in a row, despite falls in output. Finished goods inventories remain too high, which should trigger further destocking. China’s on-going series of govt.-backed bailouts of unfinished housing projects has yet to convince stakeholders that we have arrived at the lows of this downcycle. Maintain SELLs on BHP, RIO and ANTO.
Although Rio’s H1 results were ahead of the street’s expectations, the performance moderation – due to falling iron ore prices – was evident. Fortunately, Aluminium and Minerals provided a useful cushion. While prices are expected to remain volatile/weaken further, the very-high dependence on high-margin (>50%) iron ore and favourable dynamics in aluminium imply that the firm remains well-positioned to withstand the on-going challenges. Add to this the copper exposure ‘differentiation’ vs. peers plus the potential ESG improvement benefits and Rio’s attractiveness remains intact.
China first publicly expressed its frustration with the pricing of seaborne iron ore in late 2003 – when >90% of the trade was archaically priced on annually-set contract terms. Back then, CISA – chief-rep of China’s rapidly growing steel industry – threatened to somehow take control of ore pricing from the mining Majors: Vale (CVRD) + Rio Tinto + BHP (BHPB). It was an odd trade tantrum to observe, but no one took it seriously. Prices were rising simply because the miners were struggling to meet China’s ‘Super Cycle’ ore/steel demand spike. Now, almost 20 years on, CISA probably thinks that it will soon finally preside over the demise of the Majors’ so-called pricing power. Why? Last week, China created a centralised ore-trading ‘agency’ = CMRG. Here, we explain the CMRG’s real role, and why it makes no difference to the price outlook of iron ore.
Another tough week in Commodity World. We see 3 x bear factors undermining demand/prices for these markets and exposed equities: Russian trade grief + US inflation + China’s struggling growth story. Here, we explain/illustrate themes being discussed with investors of our sector (EU energy dramas + US Fed risk + iron ore’s <$100/t again)…
Today's news and views, plus announcements from: RIO, BRBY, AML, HICL, N91, AVAP, PMI, & FEVR.
RIO HICL AVAP
Last Thursday, global markets bounced on a report of an infrastructure stimulus package being considered by China’s central government. Its great news, if you’re a tactical trader with a 12-hour outlook. For fundamental analysts like us though, this story’s a fizzer. China already has >US$5tn of stimulus in play for 2022. Does pumping another $220bn into its thoroughly built-out infrastructure sector make a sustainable difference to the state of this economy? Besides, the fact that so much stimulus is needed simply to support growth seems inherently bearish. Where are one of those ‘Super Cycles’ when you need one? Here, we list the issues facing China’s latest infra-package + explain why the market’s bullish response was so short-lived…
RIO GLEN ANTO
Last week, Asia’s markets began talking about China’s official steel production cap again. Why? Probably because it was about this time last year when the central govt. strictly imposed 2021’s cap (at <2020’s total). The fact that China’s finished steel inventories are now ballooning like its 2009 + demand’s dropped off its perch, may be other reasons (Restocking Indicator still says ‘Sell’, 30-Jun-22). Time to figure out how much rust China’s 1Bt/yr steel industry needs for 2nd-half 2022…
Rio Tinto plc Ferrexpo plc
Today's news and views, plus announcements from: ANTO, RIO, WTB, CCL, SMWH, KAV, MTU, MOTR, FARN, & TAM.
Two diversified behemoths. Two dynamic groups standing at a strategic crossroads and facing up to the challenges of energy transition and ESG. Surely head-to-head this is a score draw? As ever, the devil is in the details. We dive into shifting portfolio strategies, capex needs, current asset performance, the nitty-gritty of pipelines, ESG, and the enticing but tricky prospect of MandA. While BHP''s pivot from petroleum gears it up for a fossil-fuel-lighter future, until Jansen Potash kicks in around 2027, diversification and growth look challenged. With the valuation premium well above five/ten-year average, we are Underperform. Rio is better placed, on its 2021 iron ore replacement cycle, clear capex budget, aluminium business and lithium/copper growth: Outperform.
Russia’s invasion occurred at a time when industries worldwide are struggling with weak supply growth in crude oil, gas and coal. Still, in response to this war, many countries are cutting energy imports from Russia – and seek new supply options. Global energy trade flows are re-aligning, lifting the cost of fuels and power generation everywhere. Energy World is undergoing a long-term structural change. It’s time to revise our long-term prices.
RIO AAL GLEN TGA
We hosted 24 Metals, Mining and Steel companies on 22-24 March for the 17th edition of our Basic Materials Conference. With the Russia-Ukraine crisis having exacerbated already tight metals markets, the focus was on supply chain management, cost pass-through and fears of demand destruction. Security of supply is materialising as a key driver of metals markets keeping prices higher for longer. What have we learnt from the Miners? Margins are expanding, with metals markets tight on the ground, and the Russian-Ukraine war adding disruption to some. Two years of pandemic have made miners more agile on their supply chains, with cost pressures limited to energy, freight, price-linked-costs and royalties. The message was unanimous across miners that only the conviction of higher long-term prices would motivate a supply response, not short-term spikes. Responsible mining is needed to supply for an even more pressing energy transition than before, but the capex drought looks to prevail in the short term on project lead times, rising political/fiscal risks, ESG and capital discipline constraints. Excess returns will go to shareholders. What have we learnt from the Steelmakers? Steelmakers and distributors are increasingly prepared for a higher-for-longer steel and raw materials price environment as the tragic Russia-Ukraine crisis disrupts two of the world''s largest steel exporters and drives unprecedented supply chain challenges. Management teams remain bullish on demand and focused on passing on surging raw materials costs via price hikes - as reflected in successfully rising metal spreads in both Europe and the USA. While steelmakers are focused on securing new sources of raw materials previously sourced from Russia, we heard only mixed interest in localising supply chains to limit this risk moving forward. Our most/least preferred stocks Glencore (+), Anglo American (+), Norsk Hydro (+), Eramet (+) are well placed on exposure. Upside risk...
RIO ACX OUT1V ERA VOE TKA AAL MT NUE NEM NEM ANTO NDA BOL GMKN VALE FM KCO STLD CLF APAM S32 MTUS RS CMC STLC 0OIQ 0IXZ 0I0H CMS 0MGV 0K9L RS6 1STLD ZS2 0MKX
Our commodity price forecasts have been revised (see here) together with estimates for our equity coverage. Following Russia’s invasion, the commodity supply’s outlook features uncertainty. Yes, demand will eventually come under pressure, recent inflation-hit prices lifts are set to hold over coming quarters. Wait, for there will be a better time to sell. Upgrading Rio Tinto, BHP & Endeavour from Sell to Hold; Anglo American to a BUY on PGM and diamonds exposure.
RIO AAL GLEN ANTO FXPO TGA CEY EDV SLP PDL GEMD SOLG ALL FAR SAAGF CELTF
We give an overview of our sectors and participating companies ahead of our 22-24 March event. The Russia-Ukraine crisis exacerbates already tight metals markets Even if no metal is currently subject to direct sanctions imposed on Russia, logistics are disrupted, bank financing / insurance has become harder, and importantly many importers / traders have been keen to distance themselves from Russian-origin material on regulatory and reputational concerns. A key risk is energy prices weighing on economic momentum, but China''s disproportionate weight in metals markets suggests the balance will remain tight with more infrastructure spending on its way. Fresh customer concerns on security of supply raise short and medium-term questions The genuinely inelastic nature of supply response in today''s mining amid technical/exploration/fiscal/lead time/ESG challenges was already a threat to the expected pace of energy transition, for which metals are critical. De-risking metal supply chains is bound to emerge as a new imperative for downstream users, with potential for partnerships/MandA. In Steel, the Russia-Ukraine crisis has knocked out two of the world''s largest steel exporters, meaningfully tightening supply/demand balances and disrupting supply chains in Euro and US markets. We believe it will be challenging to find alternative suppliers, supporting sharply higher steel prices. The most burning questions to ask Miners What dislocations to trade flows are you witnessing? Are your customers thinking harder about security of supply? Is this commodity price reaction a signal strong enough to induce fresh capex programmes? What could lead times be? Are miners going to sit tight and enjoy higher prices? The most burning questions to ask Steelmakers How has the Russia-Ukraine crisis impacted your supply chain and cost base for raw materials; do you expect to permanently alter procurement strategies in response? By how much will power costs increase?...
On the back of iron ore market euphoria (even though it normalised in H2 21), and ample support from aluminium and copper, Rio Tinto reported record profitability and shareholder rewards. While various price, cost and/or volume challenges/risks lie ahead, Rio is well-positioned to avert any worrisome performance erosion and at the same time stay committed to its growth and sustainability improvement measures. Hence, our positive stock recommendation is reiterated.
Atlantic Lithium* (ALL LN) / formerly IronRidge* (IRR LN) – Completion of Ricca resources demerger CATL seeking to regain NIO business with new 'ultrahigh' nickel' battery Rio Tinto (RIO LN) – Rio to pause Jadar development after protests
Rio Tinto plc Atlantic Lithium Limited.
Rio’s investors day was focused on two of the most critical mining industry thematics in today’s times, i.e. green and growth. The announced measures couldn’t have materialised at a better time, given the (recent) woes pertaining to governance and the iron ore market sell-off. Remember, considering Rio’s enviable balance sheet strength, it has the flexibility to pursue the targeted plans with rigorously and, at the same time, maintain ‘relative’ shareholder reward attractiveness. Hence, we reiterate our positive stock recommendation.
Our Restocking Indicator has once again upgraded to Buy, but we believe that this too is a false signal. Under normal market conditions – with profitability high and inventories low – China’s steel mills would lifting production rates. However, with a central government cap on output until at least Mar-22, this natural response is unlikely to play out. Indeed, while a seasonal uptick in industrial activity should still occur in 1Q22, the general demand outlook over the next six months is likely to be subdued.
RIO GLEN AAL FXPO ANTO
Yet again, Rio managed to maintain its dividend extravagance. Although, besides mighty iron ore, the exceptional H1 results were partly also driven by aluminium and copper – where normalcy is gathering momentum. With key divisions moving in the right direction, and balance sheet flexibility being put to good use, i.e. rewarding shareholders and pursuing growth – this time via a greenfield lithium investment, Rio remains a promising large-cap mining play. Further re-rating may materialise if governance issues are also addressed effectively.
This past week, we’ve talked with resources sector investors on our latest set of commodity price forecasts (Commodity priceDECK, 29-Jun-21). Popular discussion points include: 1. Chile’s copper tax vs. supply risk; 2. China’s mysterious metal reserves; 3. confusion with iron ore’s price differentials; 4. drivers/duration of Coal’s price rallies; 5. gold price vs. inflation risk; and, 6. ‘what’s that? Ben’s put BHP on a sell?’.
The Restocking Indicator (RI) has remained on the BUY signal for the third month in a row, as inventories still have yet to keep the pace of both domestic and export demand. Given the rise in steel prices globally, the strength in demand comes as no surprise, but inventories, particularly in iron ore appear to have normalised. Expecting a pullback in export demand this coming month as rebates are pulled, which might downgrade the signal, but otherwise the RI would imply this rally has a month left in it and we would play it through Ferrexpo or Anglo American.
Today's news & views, plus announcements from RIO, PAGE, AVON, BOO, GHS
Today's news & views, plus announcements from RIO, CRH, DLG, DOM, TEAM
Despite COVID-19 uncertainties, Rio reported strong 2020 results. Unsurprisingly, the performance was again driven by iron ore – which reported a c.60% operating margin. Although some support was also rendered by aluminium. This helped in maintaining attractive dividends and the continuation of deleveraging. While we still expect iron ore prices to normalise gradually, Rio should remain well-positioned to outperform peers in dividend terms, thanks to flexibility rendered by its fossil-free proposition and the new CEO focusing on the right areas of improvement.
Today's news & views, plus announcements from IMB, RIO, UKW, PLUS, SIG, TRIG, CREO, SUPR
The eight diversified miners under our coverage will report H2/FY20 performance over the next two weeks, with spot prices leaving earnings firmly in upgrade territory. Price-to-profit conversion at its best in calendar H2 2020, in particular for iron ore In H2 2020, miners were able to bring production back on, after many operations were suspended in Q2 during the worst moments of the pandemic. Some costs were also removed and productivity gains surprised on the upside. Meanwhile, the prevailing macro Goldilocks scenario has kept pushing commodity prices higher. Iron ore has been in a particularly sweet spot, with Vale (+) eventually delivering a flat year for production, whereas Chinese imports broke new records: the last time Iron ore EBITDAs were seen at these high levels was in 2014, and 2010 before that. This part of the recovery is the one when prices take off leaving cost inflation behind, initially. Investors will be asking for guidance on unit cost going into 2021 as forex is starting to move the other way, visible in the AUS/USD. Energy costs are also on the rise. Royalties are taking their toll too. The most difficult question will be capital allocation, or maybe not: just pay more dividends Operating cash flow in aggregate across our coverage (diversified and pure plays) would reach USD119bn in FY21e on our central case, with USD35bn available for dividends. Last time OpCF topped USD110bn was back in 2010-11, but large capex plans then left USD15-25bn for dividends. With almost all balance sheets in very strong shape, management teams have to ask themselves how to make best use of the excess cash being generated. Some capex have been deferred and need to take place this year. The ESG/energy transition will need some investments too. Now may also be a good time to offload some legacy assets. While macro visibility is not yet totally de-risked, and the window for cash MandA may have been missed, dividends look like a safe...
RIO ERA AAL GMKN VALE GLEN S32 BHP
Today's news & views, plus announcements from RIO, BBOX, TATE, WKP, KWS, JOUL, GSEO
Today's news & views, plus announcements from RIO, EXPN, BLND, GLEN, PFD, HMSO, WG, WJG, HOTC, KAPE, QTX, BOOM
Today's news & views, plus announcements from RIO, TSCO, WIZZ, SVS, BBOX, EMAN, POLR, BRK, BOO, THG
The signal for our Restocking Indicator has strengthened as China’s domestic demand improved and inventories of finished materials contracted even faster this month, delivering a buy recommendation for the second month in a row. We believe that the current signal is better corroborated by other near term indicators than last month’s, particularly as seaborne iron ore supply has tightened a notch, and would recommend Anglo American and Ferrexpo on a one-month view.
In these five short videos we outline our sector view of the key commodities and the major mining companies for the next six to twelve months ahead. Whilst we are incrementally more bullish on the short term outlook, because of stronger than expected Chinese credit growth, we are still downgrading Rio Tinto to SELL, and Antofagasta, KAZ Minerals to HOLD on valuation grounds and upgrading Anglo American to a BUY
RIO ANTO KAZ AAL
Our Restocking Indicator is back on a Buy signal for the third time this year, as inventories of steel remain relatively low versus orders and inventories of raw materials. Whilst the Restocking Indicator has had 100% accuracy year to date, we would caution any outright bullishness, given it does not reflect changes in global macro sentiment or changes in iron ore supply. We would recommend a pair trade of short Rio Tinto, long Anglo American.
In this presentation we outline our sector view of the key commodities and the major mining companies for the next six to twelve months ahead. Whilst we are incrementally more bullish on the short term outlook, because of stronger than expected Chinese credit growth, we are still downgrading Rio Tinto to SELL, and Antofagasta, KAZ Minerals to HOLD on valuation grounds and upgrading Anglo American to a BUY. We are picking value where we believe market has overestimated price support in iron ore and underestimated it in PGMs. We are broadly neutral on copper and coal at current spot prices and caution reading too much into the recent diamond recovery.
RIO GLEN AAL ANTO KAZ FXPO
RIO TINTO^ (RIO, NR, CNP) – Q3’20 production essentially in-line, FY20 production guidance largely reiterated, cost guidance maintained | SALT LAKE POTASH^ (SO4, NR, CNP) – Mid-Oct’20 deadline for meeting debt conditions missed; now targeting Nov’20; Taurus gets A$0.75m of shares for extension
Rio Tinto plc Salt Lake Potash Limited
The iron ore producers continue to enjoy abnormally high prices, driven by seemingly insatiable Chinese import demand, that are driving large upgrades to consensus this year and next. However, we fail to see what could justify Chinese steel demand upgrades in 2021 and beyond, when infrastructure and real estate investment already appear to be slowing. Seaborne supply is in full swing, but scrap is set to recover on better prices. Rio Tinto is pricing in $92/t iron ore for 2021, but we see little fundamental support at that level. Maintain HOLD sector ratings but with a view to downgrade Rio Tinto, once our short-term indicators turn.
Amid the heritage cave blasts controversy, Rio Tinto announced that its CEO will be resigning and there would be other key management exits. It’s clear that the mounting external pressure hasn’t left many options. While JS’s exit is a near-term blow, this development perhaps sets the ball-rolling for Rio’s ESG momentum – which has been missing so far. Fortunately, the group’s is well-positioned to invest in a robust governance structure and, hence, do away with the only scar left in its recovery story.
Our Restocking Indicator is back on a BUY signal following its second strongest reading on record. Despite the continued contraction in both new domestic and export orders, finished goods inventory levels are contracting faster and the restocking demand impulse will continue in the short term. Iron ore equities could go higher still, but we believe they are likely to de-rate further on stronger spot prices. We remain pessimistic on iron ore prices on a six-month view as the market loosens, but on a one-month view, we maintain a Hold recommendation on the sector.
Rio delivered a decent set of H1 results, especially considering the COVID-19 disruption. Once more, Iron ore single-handedly came to the group’s rescue and (largely) compensated for varying issues in other divisions, thereby facilitating $2.5bn of dividends. While we don’t expect a magical near-term turnaround in the troubled divisions, iron ore’s sustained resilience should provide healthy comfort – also from a dividend perspective. Hence, Rio remains our preferred diversified mining bet.
RIO TINTO^ (RIO, NR, CNP) – Q2’20 production in-line, FY20 guidance reiterated; second COVID-19 wave seen as key threat
RIO TINTO^ (RIO, NR, CNP) – Updated Oyu Tolgoi feasibility study sees reduced reserves, confirms timeline and cost blowouts | TRIDENT RESOURCES^ (TRR, NR, CNP) – Renamed ‘Trident Royalties’; trading under new name from Mon 6th July 20; ticker unchanged
Rio Tinto plc Trident Royalties Plc
RIO TINTO^ (RIO, NR, CNP) – Updated Oyu Tolgoi feasibility study sees reduced reserves, confirms timeline and cost blowouts | TRIDENT RESOURCES^ (TRR, NR, CNP) – Renamed ‘Trident Royalties’; trading under new name from Mon 6 th July 20; ticker unchanged
Our Restocking Indicator has returned to a Hold signal after being on a sell for only one month following its weakest reading. The upgrade in the signal was driven by the inventories of steel at mills contracting faster than that of raw materials.
RIO FXPO AAL
We had been bearish on BHP, Rio Tinto, Anglo American and Ferrexpo, because we expected the iron ore and coking coal price to collapse. They have not, but the share prices have plummeted anyway.
Iron ore yet again proved to be Rio’s biggest strength – accounting for 90% of 2019 profits. However, the group is yet to capitalise and deliver in high-potential aluminium and copper. Given Rio’s material Chinese business exposure, the Coronavirus uncertainty should be another (big) burden. Fortunately, the group’s balance sheet strength and absence of coal exposure (unlike peers) should be helpful in withstanding the on-going difficulties/uncertainties.
Good FY19 results RIO reported EBITDA of $21.2bn (+17% YoY, consensus $21.0bn) and underlying earnings of $10.4bn or 636cps (consensus $10.4bn or 629cps, INVe 620cps). Iron ore FCF was $9.6bn; RIO’s total FCF was $9.2bn. The final dividend of 231cps took the FY DPS to 443cps (cons 452cps), including the special dividend of 61cps in 2H. FY19 dividends totalled $7.2bn direct, a 70% payout and a record quantum for the company. ROCE was a sector leading 24%. After capex of $5.5bn, RIO ended the period with net debt of $3.7bn (cons $4.9bn), down from the last reported $4.9bn (pro forma $5.2bn). Consensus was forecasting a 15% drop in earnings in FY20, with EBITDA of $18.5bn, EPS of 534cps, DPS of 331cps and RIO to end the year with net debt of $5.1bn (INVe $3.4bn). As a gauge of leverage, a $10/t lower forecast iron ore price (to $75/t) would lower our FY20E EPS by 16%. Key points from presentations and roundtable Climate change strategy. RIO has made several climate change-related targets, including 15% lower absolute emissions by 2030, part of a larger TCFD document announced today. To this end, it has allocated $1bn of climate-related spend over the next 5 years (could be opex or capex), stating that all such expenditure will be rational and economically defensible. M&A. While RIO has stated before that M&A transactions destroy value, it has looked at more than 200 M&A opportunities in the past 3 years. First focus has been on lithium (cf. RIO’s existing exposure: Jadar and Boron (lithium by-product)) and then on battery grade materials (copper, nickel). PGMs are also of interest, but not in South Africa. Any opportunity must be for value, must be lowest cost, meet IRR hurdles and be in an attractive jurisdiction. Clearly a tall order, perhaps why RIO’s first preference for growth is organic. Coronavirus. RIO expects a Q1 impact, with recovery dependent on the rate of normalisation. Chinese stimulus is currently through freer credit, likely to be more direct (infrastructure, construction) from Q2. Steelmakers being limited by inputs such as flux, scrap, while domestic iron ore producers likely to be off 5-10mt from forecast 260-265mt rate (62% equivalent). Winu. Targeting first production in 2023, which would be a 5-6 year time from discovery. While this is an aggressive timetable, particularly given environmental permitting, it is not impossible, in our view, given RIO’s well established presence in the Pilbara. OZ Minerals’ Prominent Hill project took 6 years from discovery to production, in a remote area in South Australia.
Lithium has had a dismal couple of years and prices are now back at levels seen before the first wave of enthusiasm for battery materials. Demand has been disappointing, particularly out of China because of the slump in electric vehicle sales and supply from hard rock producers in Australia came on too quickly.
Rio Tinto plc Millennial Lithium Corp.
China has done it again, smashing records for steel consumption and real estate construction, and in the process gifting the iron ore miners staggering profits. The consumption trends and our lead indicators would suggest that the good times will continue in the short term.
Rio Tinto held a rare Investor Seminar today, with presentations by several members of the executive team. While the presentations were strictly scripted, and the Q&A gave very little away in terms of new information, the seminar highlighted that the company is firmly back to its roots: conservative, disciplined, focussed on generating cash and delivering shareholder returns. Boring at its best, as RIO always should be. Not just about digging dirt. RIO highlighted the greater complexity and increasing global challenges facing the industry in the next decade, driven by growing geopolitical tensions (trade and GDP growth), higher societal expectations (ESG/climate change) and technological disruptions. The company states that the best way to tackle climate change is by working across the entire value chain, from the iron ore/bauxite mine to the automaker. To this end, it will continue to develop partnerships such as the one recently announced with Baowu and Tsinghua University. RIO noted that 71% of its electricity consumption comes from renewable sources and that it has reduced its own emissions by 18% in the past 5 years. This includes sourcing renewable power at Kennecott (vs coal powered previously), thereby reducing the operation’s carbon footprint by 60% while improving community relations, given the winter inversions regularly experienced in nearby Salt Lake City. No growth for growth’s sake. In the last 3 years, RIO has grown volumes at a c.2% CAGR but future growth remains captive to the company’s value-over-volume mantra. RIO admits that it doesn’t know what the perfect mix of commodities in the future will be, but that it doesn’t allocate capital based on what it wants the product mix to be, but on what offers the best returns: making money drives the decisions, within a background of looking at all options. Technology now reaping rewards. While several companies are advocating their technological expertise, RIO believes its mine automation system is a competitive advantage, given that much of the knowledge has been kept in-house and so cannot be bought off the shelf or replicated easily. AutoHaul, for example, has taken many years to implement and refine. In order to encourage new technology adoption at assets, the company is conducting more trialling and small scale implementation, to de-risk new technology. Focus still very much on iron ore. RIO is iron ore centric and unapologetic about this. And why should it be, given that the division has returned EBITDA margins of over 50% for the past two decades? We highlight key points on iron ore in this note. Continued overleaf
In this week’s edition of Liberum's Podcast - Best Idea of the Week, Ed Blair, Head of Product Strategy talks to Mining Analyst Richard Knights. They discuss the iron ore market and how it's perfectly set up for a sharp fall in the next six months.
RIO GLEN AAL BHP
Even though iron ore prices have weakened materially since July 2019, Rio Tinto remains well-positioned to generate healthy cash flows and maintain its shareholder reward attractiveness.
China's steel PMI data in August was poor with the headline survey estimate falling to 44.9 from 47.9 and has taken our Restocking Indicator to a Sell signal. Output surprisingly expanded slightly after two months of contractions, despite the previous demand weakness, and now new orders has then subsequently fallen even further to 37.5.
RIO AAL FXPO BHP
Mining Update, AMS, Osram, Market Highlights
RIO AAL FXPO AMS OSR BHP
The July Chinese data dump confirmed the out-of-cycle rally in Chinese property construction has likely peaked and along with it, iron ore demand. Iron ore is the only one of the four major commodities to still be trading well above its cost structure and we see limited price elastic supply above $50/t.
Given the rapid moves in commodity prices over the past week we thought it worth re-visiting our earnings momentum models, which interestingly now show the mining sector now back in marked-to-market (MtM) downgrade territory vs. consensus for the first time since January this year (using aggregate earnings).
RIO AAL GLEN BHP
Thanks to material iron ore price tailwinds, Rio Tinto managed to deliver a healthy set of H1 results, despite various other issues. Moreover, by leveraging its balance sheet, the group announced record interim dividends of $3.5bn. While iron ore is (and is likely to remain) a cash cow, all eyes are now pinned on how the copper and aluminium divisions perform/recover in the coming years. After a strong ytd run-up, buying on (macro-driven) share price corrections should be apt entry opportunities.
Restocking indicator back to HOLD after 4 consecutive BUY readings
Signs China's construction cycle could be rolling
Chinese data is (rightfully) heavily scrutinised by investors. Steel data in particular has been the source of much controversy, most recently due to the strength of apparent crude steel consumption in 2018 (+8%), as demand for end-demand items such as housing and key durable goods declined.
Despite a continued slowdown in new orders, our Restocking Indicator delivered its fourth consecutive BUY signal over the weekend at 1.13 (>1.1 = BUY).
Chinese port stocks of iron ore have fallen by c.30mt over the past three months at the same time as prices have added c.$30/t, closing last night at close to cycle highs at $110/t. The analysis we presented in our May sector presentation, highlighted around a third of the growth in China's record steel production over the past 12 months has been fed by destocking of unseen iron ore inventories across the supply chain within China.
Chinese steel prices spike, iron ore premiums lagging
Further downward revisions in iron ore supply from BHP and Rio this week, combined with a stronger than expected manufacturing PMI print has seen the mining sector rally again, now to its highest level since H2'11. The 10% rally since mid-March has been largely an equity re-rating, with commodity prices and Big-4 earnings momentum tracking sideways despite the optically positive demand and supply news.
As the slowdown in the Chinese housing market has become more apparent over the past couple of months, we've seen increasing newsflow around the overbuilding that occurred during the latest credit fueled construction surge in China. In February the Nikkei Asian Review published an article highlighting a study by the Southwestern University of Finance and Economics in Chengdu, whichcalculated 21.4% of China's housing stock was empty, or 65 million empty apartments.
We've updated our seaborne iron ore supply model following the closure of Vale's Timbopeda mine on Friday, which is the fourth incremental hit to seaborne supply following Vale's initial announcement of 40mt of lost production on January 29th. We now see seaborne iron ore production down 24mt (on a run-rate basis) since the beginning of 2018, but still an iron ore surplus in 2019 based on weak steel demand.
Despite the February print of Total Social Finance missing earlier this week, credit growth in China has rebounded and is running +25% YTD. However lending to households, which was the driver of the last credit cycle and end-demand for the all important property sector, remains subdued (-36% YTD, YoY). Over the past decade, the three credit cycles in China that have stimulated the property sector and driven global steel consumption growth have all involved rapid expansion of household and shadow lending.
Restocking Indicator signals time to SELL majors
RIO AAL GLEN S32 BHP
While Rio’s 2018 operating performance was largely stable vs. 2017, the year witnessed major asset disposal benefits. Not only did the group’s bottom-line – supported by disposal gains – hit its highest level since 2010, the full-year shareholder rewards totalled $13.5bn. Interestingly, the on-going disruption in global iron ore markets, removal of US sanctions against Rusal and the restoration of operational normalcy in copper should provide further impetus to near-term earnings, thereby helping Rio to maintain its overall attractiveness.
This morning's China steel PMI data has delivered a sharp improvement in our steel restocking indicator signal to BUY (from HOLD). Given the continuation of weakness in Chinese credit, the slowing housing market and weak appliance output the rebound is surprising, but may reflect restocking ahead of Chinese New Year, particularly given the flat to weak readings in November (0.85) and December (0.99).
H1 performance, even though healthy, was fairly stable (both yoy and hoh). Apart from iron ore and aluminium continuing to be healthy profit-generators, some revival in copper was welcome. While the recent sentiment is driven by the optimism around hefty shareholder rewards, revival of the capex cycle might soon come to the fore. Nevertheless, Rio is one of the best positioned miners to withstand most uncertainties and, hence, remains one of our preferred bets.
Apart from extraordinary commodity price tailwinds in 2017, Rio’s cash position also benefited from hefty asset disposals. As a result, net debt slumped to highly comfortable levels, and record dividends and share buy-backs were announced. However, given that iron ore and coal (where an oversupply threat remains) accounted for a disproportionate share of earnings improvements, and copper assets are still failing to attain normalcy, Rio’s profitability and, hence, shareholder rewards are at a risk of falling again.
According to media reports, Mick Davis (ex-CEO of Xstrata, acquired by Glencore in 2013) is speculated to be the top contender for the Chairman’s role at Rio Tinto. Jan du Plessis, Rio’s current Chairman, is leaving the Anglo-Australian miner in 2018 to take up the Chairman’s role at BT Group. Finding his replacement hasn’t been an easy task, with John Varley – Rio’s director entrusted with the responsibility of finding a successor – resigning in June 2017, after he was charged by the UK authorities for alleged wrongdoing(s) during his tenure at Barclays. There is no official confirmation from Rio in this regard.
Rio Tinto reported healthy H1 17 results, with support coming from all divisions, except for copper. Sales were up 25% yoy (and 5.7% hoh) to $19bn, with iron ore and coal being the biggest beneficiaries of the pricing euphoria. Similar to peers, profit improvements were stellar, with adjusted EBIT galloping 163% yoy (and 61% hoh) to $6.5bn – wherein pricing improvements along with continuation of cost optimisation clearly dwarfed the impact of weak volumes, high inflation and energy costs, and unfavourable forex movements. In fact, Rio managed to achieve its $2bn cost improvement target for 2016-17 a good six months ahead of schedule. However, copper continued to remain in a tight spot – impacted by lower grades at Oyu Tolgoi, no contribution from Grasberg due to issues with the Indonesian government related to new mining regulations and the strike impact of Escondida (which affected Rio’s income from associates and JVs). Net attributable profit, even after forex losses of $455m (though much behind our estimates), came in at $3.3bn (+93% yoy; +14% hoh). Mirroring the operating improvements, even reported OCFs came in much stronger (+95% yoy; +21% hoh) at $6.3bn, which along with conservative capital spend of $1.8bn helped further reduce (19% vs. 2016 end) net debt to $7.6bn. H1 also witnessed the Australian thermal coal asset sale finally coming to a closure, after a fiercely fought bidding war between Yancoal and Glencore. Post a series of counter offers, Rio finally decided to go ahead with Yancoal’s offer of $2.7bn, – o/w $2.45bn would be payable in cash on completion while, out of the remaining $240m of unconditional royalty payments, $200m would be received before 2018 end. Management expects this transaction to close during Q3 17. Taking into consideration the strong operating performance, which would be further supported by the Australian thermal coal asset sale proceeds, Rio announced a record interim dividend of $1.1 per share. Furthermore, after announcing a $0.5bn share buy-back programme in February 2017, the group announced another $1bn of buy-backs. Management guides 2017 capex of $5bn, followed by $5.5bn in both 2018 and 2019.
Rio Tinto’s FY16 operating results (i.e. group-level sales and underlying operating profit) came broadly in line with AV’s estimates, with material improvements achieved in H2 16. However, the announcement of lucrative dividends (and buy-backs) and the reversal of hefty forex losses on external debt were major surprises. Reasonable ‘group’ operating performance… H2 and FY16 sales were $18.3bn (+8.5% yoy; +18% hoh) and $33.8bn (-3% yoy), respectively. Commodity prices continued to recover in H2 (iron ore and met coal in particular), which along with healthy volumes resulted in pronounced sequential sales growth. However, the full-year top-line was impacted by below par copper operations and material aluminium (premia) weakness, more than offsetting the volume-driven resilience in iron ore. Adjusted operating profit came in at $3.8bn (+47% yoy; +45% hoh) and $6.5bn (+2.4% yoy) for H2 and FY16, respectively, with a full-year operating margin of 19.2%. The full-year (pre-tax) cash cost improvements (well spread across segments) amounted to $1.6bn (o/w $0.6bn were realised in H1). Clearly the operating disappointments of H1 were more than compensated for in H2. However, we were surprised with Rio reporting $611m of forex gains on external debt and intragroup balances in FY16 vs. average annual losses of >$3bn during FY13-15. H2 reported net income came in at $2.9bn (vs. $1.7bn in H1 FY16 and a loss of $1.7bn in H2 FY15) while the full-year figure was $4.6bn vs. a loss of $866m in FY15. Handsome shareholders’ returns Citing the material recovery in the bottom-line, Rio announced a full-year dividend of USc170 per share, though down 21% compared with FY15. This payout was much higher than management’s earlier commitment of a minimum dividend of USc110. A $0.5bn share buy-back (of the PLC shares) was also announced. Despite the profitability resilience, reported OCFs were down (10% yoy) to $8.5bn as working capital efficiencies (sizeable in the earlier years) reversed in FY16. Yet, a combination of conservative capex (-36% of $3bn) and asset sales helped net debt reduce (29% from FY15-end) to $10.2bn. Management guides for aggressive capex of $5bn and $5.5bn (of which sustaining capex would be c.$2bn) during FY17 and FY18, respectively.
This Morning’s News Rio Tinto (RIO LN)
Rio Tinto (RIO LN) has released strong production results for Q3 2016. Iron ore production was up 2% YoY and 3% QoQ to 83.2mnt, however, we note a 5% YoY and 2% QoQ decline in shipments due to rail maintenance. This is likely to impact 4Q 2016 also as shipment guidance has been reduced for iron ore to 325-330mnt for the full year. Met coal production was up strongly, 17% YoY and 21% QoQ to 2.18mnt, due to outperformance at the Kestrel mine. Thermal coal production was down 2% YoY and up 4% QoQ to 5.4mnt due to planned mine sequencing at Hunter Valley.
Rio Tinto posted disappointing H1 16 results. Unlike Anglo American, Rio failed to capitalise on a material rebound in commodity prices since the beginning of this year. H1 sales were $15.5bn (-14% yoy; -8% hoh) as prices continued to more than offset the benefit of strong volumes (except for copper). Adjusted EBIT remained weak (-48% yoy; +1.6% hoh), coming in at $2.6bn and resulting in operating margins of 17.1% (vs. 18.2% in 2015), nowhere comparable to the 39% in 2011. Barring a minor uptick in the energy (coal) division’s earnings, all other commodities (copper in particular) continued to witness profitability pressure. Even $560m of cost savings (out of $1bn targeted for 2016) and $241m of currency benefits failed to end the operating misfortunes. Also, with long-term coal fundamentals in muddy waters, Rio took a $709m provision pertaining to its contractual use of the Abbot Point coal terminal and its rail capacities. However, the bottom-line situation was slightly better – with a net attributable profit of $1.7bn vs. $806m in H1 15. This support came from $558m of derivative and forex gains (primarily on external debt held in non-USD functional currency companies) vs. a $1.3bn loss in H1 15. An interim dividend of 45 US cents per share was announced. Even though this dividend was down 58% yoy, this marks the beginning of Rio’s adoption of a rational (payout-based) dividend policy. Cash flows too remained tepid with reported OCFs falling 27% to $3.2bn. Yet, the group’s net debt was reduced by 4.4% to $13.1bn, which was supported by: 1/ 47% lower capex of $1.3bn; and 2/ $617m proceeds from the Bengalla coal JV divestment. While management has maintained its 2016 capex guidance of $4bn, the spending plans are set to get aggressive in 2017-18, with a targeted annual spend of $5.3bn. Illustrated below are Rio’s key growth investments. Source – Investor Presentation H1 2016 results
Rio Tinto (the world’s second largest miner by market capitalisation) too has fallen prey to the ensuing commodity market downturn. Not only have its profits slumped below the lows of 2009, the group has now been compelled to do away with its progressive dividend policy. *Abysmally weak prices dwarf strong volume ramp-up* Sales: H2 15 – $16.8bn (-28% yoy; -6.3% hoh); 2015 – $34.8bn (-27%; 0.9% behind AV estimates) Lower prices have alone had a top-line impact of >$13bn in 2015, thereby completely overshadowing healthy production volumes (especially of iron ore in H2). Unfortunately, no commodity in Rio’s basket has been spared from the pricing carnage – with iron ore down 43% in 2015 – followed by copper (-20%), met coal (-19%), thermal coal (-16%), and aluminium (-14%). *Impairments and forex losses aggravate profitability woes* Adjusted EBIT: H2 15 – $2.6bn (-56%; -30% hoh); 2015 – $6.3bn (-51%; 14% behind AV's estimates) Despite $1.3bn of cash cost improvements (with $6.2bn of savings achieved since 2013), gains from weaker producer currencies (+$2bn) and lower energy costs (+$359m), profitability has been pushed to record lows. The worst impact has been on iron ore (Rio’s most profitable business) where 2015 EBIT has plummeted 51% to $6bn. These woes have been further amplified by $2.8bn of asset impairments (primarily on the intangibles associated with Simandou iron ore – the world’s largest untapped reserve) and $3.6bn of forex losses (mainly on the US dollar debt held at subsidiaries). As a result, H2 net attributable loss stood at $1.7bn (vs. a profit of $2.1bn in H2 14 and a profit of $806m in H1 15), while the full-year net loss came in at $866m (vs. a profit of $6.5bn in 2014). Additionally, $2bn of losses (primarily on currency translation) in the statement of comprehensive income further eroded shareholders’ equity. *Reality check for dividends* Despite $1.5bn of working capital release (similar to 2014), reported OCFs also tanked 34% to $9.4bn in 2015. Even though capex (down 43% to $4.7bn vs. the peak of $17.6bn in 2012) has been reined in aggressively, the burden of $6.1bn of dividends and buy-backs resulted in net debt increasing 8.3% to $13.7bn. While full-year dividends have been kept flat at $2.15 per share (+6.1% in pence terms), its sustainability was highly questionable with commodities failing to find a bottom. As a result, Rio’s progressive dividend policy has been replaced with an earnings-based policy – targeting a 40-60% payout of underlying earnings over a business cycle. However, the management has committed to a full-year dividend for 2016 of at least $1.1 per share. In the meantime, bare minimum capex is being proposed for 2016 ($4bn), 2017 ($5bn) and 2018 ($5.5bn). While another $2bn of cost savings are being targeted through 2017.
Metal Tiger (MTR LN)– Update on Option over Semenovsky Gold Tailings Project | North River Resources (NRRP LN)– Drilling results from the Namib lead/zinc project | Rio Tinto (RIO LN)– Feasibility study on Simandou to be presented in May
RIO NRRP MTR
Full year Fe ore shipments of 337mt met guidance provided by Rio Tinto (RIO) with Q4 putting in a strong showing of 91mt shipped for a gain of 11% YoY. Copper and titanium slag were the only falling production commodities YoY with results of 505kt, down 16% and 1.1mt, down 25% respectively, in an otherwise relentless rise in bulk commodity output from the firm. Hard coking coal production was up 11% YoY to 7.9mt and aluminium rose slightly to a full year output of 3.3mt. Exploration expenditure fell 25% YoY to US$576m.
Rio Tinto (RIO LN) has announced the signing of a US$4.4bn project finance deal for the underground mine development of its Oyu Tolgoi copper mine in Mongolia. A debt cap of US$6bn was agreed to allow for contingencies. However, there remain a number of hurdles with permits, a further feasibility study as well as final board approval all outstanding. Given the challenges that RIO has encountered progressing the project to this stage we do not rule out further delays.
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Indices and Markets
A China-induced commodity market crisis has engulfed all miners globally and Rio Tinto – despite being extremely competitive in its operations – has been no exception. Rio reported weak H1 15 results on the back of its hefty iron ore exposure. Top-line plummeted 26% yoy to $18bn, thanks to a 46% correction in iron ore prices, followed by weakness in thermal coal (-17%), met coal (-14%) and copper (-14%) prices. Only the aluminium price was up 2%, but there again prices (along with premia) had started retreating in Q2. The profitability impact was even worse, with an adjusted EBIT of $3.7bn (-47%), which completely overshadowed the $641m of (pre-tax) cost improvements and $847m of (post-tax) exchange rate benefits from depreciating producer currencies (AUD and CAD down 14% and 11%, respectively). Other losses (dominated by $1.4bn of forex losses on external debt and intragroup balances) magnified Rio’s woes, which translated into a paltry net profit of $806m vs. $4.4bn in H1 15. Further down, $1.3bn of currency translation losses (offset by some actuarial gains) culminated into an half-yearly total comprehensive loss of $247m – the worst since H2 12. Reported OCFs were down 19% to $4.4bn (despite a working capital release of $30m vs. use of $795m in H1 14) and capex was also down 35% to $2.5bn. Still, net debt inched higher (+8% hoh) to $13.7bn – reflecting FY2014 final dividend payments and share buy-backs. Nevertheless, adhering to its progressive dividend policy and defying the macro-economic realities, Rio announced an interim dividend of USc107.5 per share (+12%). Management increased its FY2015 cost savings target to $1bn, after 85% of its initial target of $750m was realised in H1 15 itself. At the same time, 2015 and 2016 capex guidance was reduced to $5.5bn and $6bn, respectively, versus $7bn per annum initially.
Still bearish of the sector as a whole and am happy reo remain short but some key supports are nearing which would make good levels to be looking to reduce shorts
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