While many commodities plummeted in value because of Covid-19, iron ore only dropped slightly as the outbreak spread. This is because the market is driven by Chinese steelmakers, who largely kept operations going.
Rio Tinto (RIO) has maintained its iron ore guidance for the year – adjusted because of a cyclone in February – and is confident on China’s recovery. “Demand for the high-quality iron ores we produce remained strong in the first quarter of 2020, mainly driven by a combination of seaborne supply disruptions and solid demand from China's steel mills despite Covid-19 impacts,” the company said.
Outside China, the situation is less positive. Rio said aluminium demand had dropped significantly and global aluminium inventory had risen by over a third year-on-year to 3mt. The London Metal Exchange cash price for aluminium is down 19 per cent from mid-January, to $1,470/t (£1,176/t).
On the copper front, Rio is facing operational challenges beyond Covid-19 shutdowns. An earthquake in March at the Kennecott mine in the US means a furnace rebuild is needed, cutting production this year. Even before the earthquake, lower grades knocked copper output by a third in the quarter compared to 2019. This will see Rio miss its guidance of 530,000-570,000t of copper.
RBC says Rio’s balance sheet strength leaves it in a good position once industry returns although forecast a dividend cut this year, from the $2.73 per share base case to $1.24.
