Rio Tinto’s Unchanged Output Forecast To Boost Iron Ore Prices

Rio Tinto, the world's second-largest iron ore miner, didn't increase its production guidance despite a global supply shortage, adding to the tailwinds for Indian producers.

Rio Tinto, while announcing its results for 2018, kept the output forecast unchanged for 2019 at 338-350 million tonnes. That's despite a 70-million output cut by No. 1 iron ore miner Vale SA after the Brazil dam collapse. Global ore prices have jumped 20 percent this year after the tragedy.

In India, state-run NMDC Ltd. increase prices in mid-February after four consecutive price cuts. That came after Odisha miners increased prices in line with the global uptick.

Prices could remain buoyant because of demand from steelmakers in the January-March period, when infrastructure activity picks up across the economy, according to TRK Rao, commercial director at NMDC.

Integrated steelmakers like Tata Steel Ltd. will be cushioned from higher ore prices. The company meets its entire ore requirement through captive mines.

Rio Tinto's guidance of not increasing iron ore production is expected to keep supply tight and also boost steel prices, said Amit Dixit, research analyst and assistant vice president-institutional equities at Edelweiss Securities. The brokerage has a ‘Buy' rating on Tata Steel with a target of Rs 600 apiece, implying an upside of 20 percent.

But higher iron ore prices could hurt margins of JSW Steel Ltd. and Jindal Steel and Power Ltd. that have to source the raw material from outside. JSW Steel's six captive mines contribute 15-20 percent of its ore requirement, according to its annual report for the year ended March 2018.