Coincidence as BHP follows Rio, cuts guidance

Poor weather in the March quarter was blamed for BHP cutting guidance for iron ore production in the Pilbara, a move which may allow some breathing room for the juniors.

The company has shaved 10 million tonnes off their previous 2015/16 guidance of 270 million tonnes, which combined with the stoppage at Samarco in Brazil will bring BHPs global production for this financial year down by around 30 million tonnes.

Rio Tinto recently cut production guidance by 20 million tonnes from 350, but blamed issues with introducing driverless trains for the slower than expected expansion.

Despite BHP’s need to ‘blame it on the rain’, FMG described the cyclone season as “unseasonably mild” according to the West Australian. The Australian major has flagged a potential rise in exports given Port Hedland was closed for only two days for Cyclone Stan.

The production shortfalls may be linked to stronger iron ore prices in 2016, up to $US64.77 on Wednesday, the highest since June 2015.

This has been read as a boon for smaller operators, such as Atlas Iron, with the predictable reaction being to increase production while conditions are favourable. Unfortunately pundits suggest this will result in an increase in global supplies to the already oversupplied market, and a reversal of the recent positive pricing trend.

Analysts suggest the coincidence of both BHP and Rio Tinto releasing the pressure on their iron ore production may be a sign the companies wish to lean operations towards “value over volume” while keeping some production capacity up their sleeves to bring back to market if the price remains steady.

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