Iron ore profits to drop by a third
Rio Tinto, the world’s biggest iron ore producer, is set to report its lowest half-year earnings and dividend in three years this week. The company is attributing the decline to a 15% fall in received iron ore prices over the period, as supply chains begin to normalize after the Covid-19 pandemic.
Iron ore accounts for approximately 70% of Rio Tinto’s earnings, making it highly susceptible to fluctuations in the iron ore market. The company is expected to log profits of $5.85 billion and dividends of 185 US cents, a 32% decrease compared to last year’s figures.
However, there is some optimism in the market as iron ore prices have rebounded this quarter to reach their highest point in four months. This is largely due to hopes of targeted stimulus for China’s property sector, as the country’s top leaders have pledged to step up policy support for the economy. This could potentially boost domestic demand and lead to further stimulus measures.
Analysts, however, are less optimistic, suggesting that the “China reopening trade” may be coming to an end and that there may not be substantial stimulus measures in the future. Kaan Peker, an analyst at RBC in Sydney, stated, “We don’t think there is going to be large stimulus.”
In addition to Rio Tinto, other major iron ore producers are also expected to report lower earnings. BHP Group, the world’s largest listed miner, is set to report a 35% fall in underlying profit for the half. Fortescue will release its quarterly production results on Friday and its financial results on August 27. Vale, the world’s second-biggest iron ore miner, will report its financial results on July 27.
The decline in earnings from these iron ore majors reflects the broader market trends and the challenges faced by the global iron ore industry. As supply chains continue to adjust to the new normal, attention is turning to how suppliers to China’s steelmaking industry perceive customer demand. These earnings reports will provide valuable insights into the state of the industry and its future prospects.