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Posted: 2019-06-20 01:12:10

In a statement to the ASX Rio said it was "experiencing mine operational challenges" in the Greater Brockman hub in the Pilbara that were resulting in a higher share of lower-grade products being produced.

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Because of the operational challenges Rio said it had reviewed its mine plans, which in turn resulted in the lowered production guidance.

On Wednesday the key industry benchmark price for iron ore, a crucial steelmaking commodity, rose by 2 per cent to $US114.25 ($166.63).

Market dynamics suggest that the gap in iron ore supply due to the Rio downgrade will be more than offset by the increased production by Vale.

Brazilian miner Vale, the world's biggest iron ore producer, revealed overnight that a court injunction stopping it from using the Laranjeiras dam had been revoked. This means the miner can resume "wet processing" operations at the Brucutu mining complex. Recently, it has been undertaking dry processing only at the site.

"The ruling will mean that Vale's iron ore production could increase by 20 million tonnes per annum, given that 10 million tonnes per annum of Brucutu's production has already come back online via dry processing," said Vivek Dhar, CBA mining and energy commodities strategist.

"For the seaborne iron ore market, the ruling means that only about 4 per cent of global supply is now offline, compared with 5 per cent previously," he said.

The iron ore price has surged throughout 2019, ever since a devastating dam collapse in Brazil that killed more than 240 people slashed Vale's iron ore production, generating uncertainty about global iron ore supplies. Shares in Australian iron ore miners have soared in the period since.

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