Top four iron ore miners’ production flat in Q4 2020
Iron ore prices have soared to a nine-year high driven by strong government stimulus measures in China and constrained Brazilian supply, but the elevated prices seem to have a limited effect in pushing miners to increase supplies due to many factors. Our data shows that, in 2020, seaborne iron ore exports to all countries increased 3.2% to 1,574 Mt. The top four iron ore producers (Rio Tinto, Vale, BHP and FMG), which account for 69.7% of the global seaborne market share in 2020, had their total exports almost flat in both Q4(288.2 Mt) and the past year(1098 Mt).
Per company, based on our estimates, Rio Tinto is very likely to meet its 2020 guidance but Vale might barely meet its annual production target or slightly miss it. Both BHP and FMG, which just have finished the second quarter of their fiscal year 2020-21, have probably produced more than half of their annual guidance respectively.
From a share performance point of view, FMG’s share price more than doubled in 2020 while peers like Rio Tinto (+12%), Vale (+26%), and BHP (+20%) relatively underperformed. Tidy profits allow FMG to keep its generous dividend policy as the company has decided to pay a range of 50-80% of its net profit after tax. BHP, which has benefited from both soaring iron ore and copper prices, is expected to generate an 8.2% dividend yield, compared to Rio Tinto's 7%.
Rio Tinto is very likely to meet annual guidance
- The world’s biggest iron ore miner exported 94.4 Mt of iron ore to all countries in the last quarter of 2020 according to Kpler data, the highest since at least 2017 and marking a gain of 7.3% q/q and 2.5% y/y.
- After taking an average 6% margin of error into account between Rio’s official shipment data and our exports data over the past two years, the company’s actual shipment in Q4 could be about 88.7 Mt. As it had already shipped 241.7 Mt in the first three quarters of 2020, the company is very likely to meet its annual guidance of 324 – 334 Mt.
Vale’s production might barely meet or slightly miss its latest yearly guidance
- After revising down its 2020 production guidance once again in early December due to production and transportation disruptions caused by Brazil’s wet reason, Vale’s current 2020 production target stands at 300-305 Mt. As the company has already produced 215.9 Mt from Q1 to Q3, at least 84.12 Mt is left to be mined.
- Our data shows that Vale exported 78.3 Mt to all countries in Q4, 7.5% lower than in Q3. After a margin range of error of 6%-7.5%, the Brazil-based miner is likely to produce 83-84.2 Mt in Q4, signaling it might barely meet the latest annual guidance or slightly miss it.
- Vale's slow recovery from the deadly dam collapse in Brazil in 2019 has been a main factor of strained world iron ore supply last year. The landslide last month at Vale SA's Córrego do Feijão mine killed one worker and raised fresh concerns about supplies from the company.
- A bright spot is at Brazil's Samarco mine (capacity 117Mtpy), in which Vale and BH each have a 50% interest, where mining activities are restarting five years after a dam disaster in 2015, at an initial capacity of 30.5 Mt.
BHP’s exports continue to fall in Q4 but are still at high levels
- BHP exported 70.7 Mt of iron ore to all customers in Q4 2020, down 3.4% from Q3 but remained the fourth strongest quarter since 2017. In the first quarter of its 2021 fiscal year starting from June 2020, the Anglo-Australian miner posted production (WAIO 100% basis) of 74.2 Mt, only 1Mt higher than our export figure.
- As the company expects to produce 276-286 Mt in its 2021 fiscal year ending June 2021, production in its first two fiscal quarters has probably exceeded 50% of its yearly guidance.
- Although adverse weather conditions in Australia have pushed up prices further, cyclones in December seemed to have little impact on the company’s exports as departures managed 24.6 Mt in the last month of 2020, up 10% m/m.
FMG’s shipments rose as the new Eliwana mine arrives
- FMG’s iron ore shipments to all countries rose by 5.2% q/q to 44.8 Mt in Q4 as the company brought its new Eliwana mine (capacity 30 Mtpy) in Western Australia’s Pilbara region online in December, aiming to maximise its iron ore throughput at a time when high prices net hefty profits.
- The solely iron ore-focused Australian mining group reported a shipment of 44.3 Mt for the quarter ending September. The Q3 and Q4 numbers together indicate that the company has probably shipped more than half of the 2021 fiscal year guidance of 175-180 Mt.