June 20, 2019 / 7:39 AM / a month ago

CORRECTED-UPDATE 1-China iron ore soars as Rio Tinto cuts shipments forecast

(Corrects the higher end of a previous estimate of shipments in paragraph 11 to 343, not 342, million tonnes)

* Dalian iron ore benchmark up as much as 4.6% at 837 yuan/T

* Rio Tinto lowers Pilbara supply guidance for 3rd time

* Vale to restore full Brucutu mine output ‘within 72 hours’

By Enrico Dela Cruz

MANILA, June 20 (Reuters) - China’s iron ore surged to a record on Thursday after Rio Tinto Ltd lowered its Pilbara shipment guidance, suggesting that supply could remain tight even as Vale SA is set to resume full operations at its Brucutu mine.

Mining giant Rio Tinto on Thursday lowered its guidance on volumes of iron ore it expects to ship from the key Pilbara producing region in Australia for the third time since April, citing operational problems.

The guidance cut came just hours after Brazilian miner Vale, the world’s No. 1 iron ore producer, said late on Wednesday that it will fully resume Brucutu operations within 72 hours, after a favourable ruling from an appeals court.

The most-actively traded September iron ore contract on the Dalian Commodity Exchange ended the session up 3.9% at 831 yuan ($121.01) a tonne, after hitting 837 yuan shortly before trading ended.

That was the highest level for the benchmark since trading of China’s iron ore futures started in 2013.

Brucutu, which has been operating at only a third of its capacity, was shuttered in February as Vale’s mine operations came under close scrutiny after a tailings dam collapsed in Brazilian town of Brumadinho, killing more than 240 people.

Vale shut several dams and suspended some mining operations after the dam burst, curbing supply of the steelmaking raw material to China, which makes half of the world’s steel, at a time steel mills there continue to ramp up output.

As of Wednesday, spot prices of iron ore for delivery to China were at five-year peaks of $114 a tonne for the 62% grade SH-CCN-IRNOR62, $128 for the 65% grade SH-CCN-IRNOR65, $102 for the 58% grade SH-CCN-IRNOR58, and $82.50 for the 52% grade SH-CCN-IRNOR52, according to SteelHome consultancy.

The full operation of Brucutu “should help alleviate concerns about tightness in the market,” said ANZ Research analysts in a note. “However, issues at Rio Tinto’s operations suggest the market still has some challenges ahead.”

Rio Tinto said it now expects shipments from Pilbara at between 320 million tonnes and 330 million tonnes, mostly lower-grade and lower-margin product.

Its previous target was between 333 million tonnes and 343 million tonnes.

Vale at the same time reaffirmed its 2019 iron ore and pellets sales guidance of 307 million to 332 million tonnes, saying sales should be around the midpoint of that range, instead of the low end of the range as previously expected.

Prices of other steelmaking raw materials at the Dalian exchange were also higher, with coking coal futures up 0.4% at 1,398.5 yuan a tonne.

Dalian coke futures edged up 0.7% to 2,076.5 yuan a tonne.

Chinese steel futures extended their gains as well, with the most-actively traded October construction steel rebar contract on the Shanghai Futures Exchange rising by 1.7% to 3,825 yuan a tonne.

Hot-rolled coil futures jumped 2% to 3,711 yuan a tonne.

Such gains may just be “sentiment-driven”, with investors upbeat about upcoming trade talks between leaders of China and the United States, said Richard Lu, senior analyst at metals consultancy CRU Group’s Beijing office.

($1 = 6.8673 yuan)

Reporting by Enrico dela Cruz; Editing by Gopakumar Warrier

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