Rio Tinto Results: A ripping start to 2023 from iron ore’s great procrastinator

• Rio Tinto bounds out of the gate with record first quarter for iron ore shipments
• Shipments of 82.5Mt up 16% on the same period in 2022
• Copper guidance reduced on issues at Kennecott plant in the US

Traditional slow starter Rio Tinto (ASX:RIO) has delivered its best first quarter for iron ore shipments, exporting 82.5Mt of the good stuff as China’s steelmaking machine ramped up demand after the end of its Covid lockdowns.

Equivalent to 330Mt on a full year basis, it’s a far cry from Rio’s traditional form.

The world’s biggest shipper of the steelmaking ingredient made a habit of missing guidance until hitting the lower end of its 320-335Mt mark in 2022, the same production rate it is targeting this year.

Like an undergrad hitting a midnight deadline after a night at the pub, it typically runs hard and fast in the three months to December 31 to make up for lost time.

But the mining giant has given itself a head start in 2023, with first quarter shipments up 16% on the same period in 2022 (though down 6% on the December quarter).

The strong mining performance in December also helped. While mined tonnes rose 11% year on year to 79.3Mt, they were down 11% on the December term. Stock drawdowns helped pump up its exports.

“We continue to make steady progress with our highest ever first quarter shipments achieved in the Pilbara iron ore business,” Rio CEO Jakub Stausholm said.

“Through the ongoing deployment of our Safe Production System we expect to see a sustainable lift in operating performance across our global portfolio over time, in line with improvements already achieved.

“We remain focused on disciplined growth in materials the world needs for the energy transition, delivering first sustainable production from the underground mine at Oyu Tolgoi in Mongolia and progressing early works on the Rincon lithium project in Argentina.

“We advanced the Simandou high grade iron ore project in Guinea with our partners, and entered into an agreement for a joint venture to unlock La Granja in Peru, one of the largest undeveloped copper projects in the world.”

Chinese economy provides tailwinds for Rio

While Rio sees the banking crisis, rate hikes and high inflation hurting economic activity in the West, it says commodity prices have been supported by an improving Chinese economic outlook, a strong labour market and spending in the US as well as lower European gas prices.

“China continues its recovery. The government is looking to spur domestic consumption, stabilise the property sector and further support infrastructure investments to realise its 2023 GDP target,” the company said.

“Consumption is expected to normalise and recover further with household incomes supported by job creation amid government efforts to boost business.”

Iron ore prices rose 8% across the March quarter, with an average Platts 62% Fe monthly price — the price largely used to settle iron ore trades — of US$125/dmt up 27% on the average monthly price in the fourth quarter.

“The major iron ore producers’ combined shipments also rose 4% over the same period, while Chinese steelmakers ramped up their blast furnace capacity utilisation rates to more than 90%, a seasonal record,” Rio reported, echoing data out of China.

“China’s iron ore imports hit a record 309 million tonnes in the first quarter of 2023, effectively unchanged from the volume imported during the prior quarter and 9% more than the first quarter of 2022.”

Port stocks have also declined after briefly rising to more than 140Mt.

From a quality perspective, Rio has increased shipments of higher quality Pilbara Blend lump and fines by 45% and 31% respectively year on year, with lower grade SP10 lump and fines shipments falling 56% and 3% as the 43Mtpa Gudai-Darri mine moves towards full scale production in 2023.

Other markets were less bullish for Rio, with the LME aluminium price down 1% over the quarter to US$2395/t despite the average price rising 3%. LME copper rose 7% to US$4.05/lb “driven by a shift in sentiment associated with improved expectations on copper demand from China after the end of its zero-Covid policy.”

“This was reflected in a significant increase in net long investor positions in January,” Rio added.

But interest rates and the bank crisis led to price volatility in March, counterbalanced by supply issues in Chile, Peru, Panama and Indonesia.

Some of those supply issues are Rio’s own. It’s cut mined copper guidance from 650,000-710,000t for 2023 to 590-640,000t after record snowfall and a conveyor outage at its Kennecott plant in the US (down 36% YoY) and geotechnical challenges in the Escondida pit in Chile.

Rio produced 145,000t of mined copper and 59,000t of refined copper in the March quarter, with its mined copper guidance still well up on the 521,000t produced in 2022.

Iron ore and copper cash cost guidance were both unchanged at US$21-22.5/t and US$1.60-1.80/lb respectively.

Minor segments

Rio’s guidance remains unchanged elsewhere.

It sold 12.1Mt of bauxite (down 11% YoY due to heavy rainfall in Queensland), 1.9Mt of alumina and 785,000t of aluminium in the March quarter, the latter up 7% YoY, while titanium dioxide slag production lifted 4% to 285,000t despite power constaints at its Richards Bay Minerals project in South Africa.

High grade iron ore pellets and concentrates from the IOC business in Canada rose 5% YoY to 2.5Mt.

The Simandou iron ore project in Guinea, meanwhile, took a step forward last month with the signing of a shareholder agreement between a Rio Tinto-led consortium, a Chinese-led consortium and the Guinean Government, creating an ownership model for the multi-billion dollar infrastructure package needed to develop the mine and create a deepwater port for its shipments.

The largest undeveloped high grade hematite project in the world, Rio also noted it was undertaking an investigation after a “permanently disabling injury” for a worker on the Simandou project.

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