ab14 February 2024Global Research and Evidence LabPowered byUBS Evidence LabYESGlobal CommoditiesIron Ore: Wet in the Pilbara Iron ore shipments YTD highlight BHP and FMG need a strong rest of Jun-HUsing UBS Evidence Lab data (> Access Dataset), we track shipments in all regions. Year to date, shipments from Brazil and SA rose while Australia has lagged. In Jan-24, unseasonally high rainfall was recorded in central and eastern Pilbara. As a result, BHP and RIO shipments are soft YTD, while FMG shipments fell 20% YTD reflecting rains and a train derailment, leaving them susceptible to disappoint against guidance. To achieve midpoint of FY24 guidance, BHP needs to annualise ~296Mtpa for the remainder of Jun-H (vs 283Mtpa YTD), FMG 218Mtpa (vs 180Mtpa YTD), and RIO ~332Mtpa (vs 322Mtpa YTD) for the remainder of CY24.Australian shipments disrupted by high rainfall in the PilbaraIn Jan-24, the town of Newman in the Pilbara recorded ~189mm of rainfall, ~2x seasonal avg (Port Hedland and Port Dampier were dry). Mine production is potentially most impacted, with past events indicating a potential ~5-10Mt hit to shipments. FMG also had a 4 day halt to rail operations due to a derailment 30-Dec-23, leaving Jan shipments -36% m/m and YTD -20% y/y. RIO (-11% m/m) and BHP (flat) showed more modest variance. FMG needs to lift shipment run rates >20% for the rest of Jun-H to meet midpoint of guidance. While Jun-Q is approx. equal strongest of the year for Australian shipments, this may be a challenge. BHP and RIO also need to lift shipment rates ~4.5%/~3.1%, respectively, but we are more comfortable this is achievable given usual weather / shipment seasonality despite a planned BHP train driver strike 16th Feb, and a RIO train derailment. What do the signals show? CNY impacting but look to demand lift in Jun-QAs is usual for this time of year, Chinese steel inventories are lifting into the Chinese New Year holidays, but in absolute terms, are neither noticeably high or low. Iron ore inventories at ports in China are also lifting, as is usual, but remain low for this time of year. In both cases, we would expect demand acceleration post CNY to lead to inventory drawdown from a seasonal point of view. UBS View: RIO preferred, FMG guidance at riskWe are Neutral rated RIO and BHP (prefer RIO) whilst Sell rated FMG.Figure 1: FMG Iron Ore Shipments (Mthly, Annualised) - actual vs FY24 guidance implied 100 125 150 175 200 225JulAugSepOctNovDecJanFebMarAprMayJunMtpaFY19FY20FY21FY22FY23FY24Guidance (Low)Guidance (High)Source: UBS Evidence Lab, Company FilingsFigure 2: Newman Rainfall020406080100120140160180200JanFebMarAprMayJunJulAugSepOctNovDecMonthly rainfall (mm)1st to 3rd quartile range20232024AverageSource: Bureau of Meteorology, UBSThis report has been prepared by UBS Securities Australia Ltd. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including in...
