Rio Tinto Q1 2018 Production Review: Iron Ore Output Displays Notable Growth But Adjustment To Aluminum Production Looms
Rio Tinto (NYSE: RIO) released its first-quarter production results on 18th April and reported a 5% growth in its iron ore shipment volume, in line with its full-year expected volume growth. The company has kept its aluminum production guidance intact despite recent uncertainty faced with the imposition of the U.S. trade sanctions. Below are the expected production estimates as guided by the company for 2018 for its major commodities. These have been created by using our new interactive technology.
Rio displayed a 5% year-on-year (y-o-y) iron-ore shipment growth rate in Q1 backed by fewer weather disruptions, the ramp-up of its Silver Grass mines, and the ongoing productivity improvement initiative. Although the World Steel Association (WSA) has guided towards a stagnant steel demand growth in China (Rio’s key market) for 2018 and a negative growth rate of 2% in 2019, the company is, in fact, expected to benefit from higher iron ore prices despite the headwind due to its advantageous position of having access to higher grade ores.
The company’s aluminum division has been a center of recent speculation post the trade sanctions imposed by the U.S. on its major business partner, Rusal. Although the company has not changed its initial guidance for aluminum output for 2018, Rio has flagged a possibility of change in output depending on future circumstances. This would be highly detrimental for Rio as the current outlook for both Aluminum and Alumina has become increasingly favorable post the imposition of the U.S. tariffs and sanctions, and hence are expected to provide significant price appreciation. The company has confirmed the forced majeure with certain customer contracts as a consequence of these events, and is working with its customers to minimize any disruption in supplies.
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The company’s final outcome with respect to its negotiations with Rusal would have a material impact on its 2018 performance. We look forward to additional details to be reported by the company in the upcoming months.
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