Smaller Aussie iron ore miners are joining the majors in boosting profit margins

Second-tier Aussie iron ore producers on the ASX are joining the majors in locking in much higher prices for their shipments, with the steelmaking commodity pushing to a one-year high of $US116 ($162.77) per dry metric tonne (dmt) on Tuesday.

Mineral Resources (ASX: MIN) has been unaffected by the COVID-19 crisis, with its shipments sailing 33 per cent higher year on year to 14.1 million wet metric tonnes (wmt) in the 2020 financial year.

“Average iron ore revenue received of $US84/dmt during the [April-June] quarter, [is] 12 per cent higher than the previous quarter,” the company said in its June quarter report.

MIN shares are trading at an all-time high of $26.90, up 83 per cent on a year ago.

Lower freight costs boost margins

Champion Iron (ASX:CIA) shares advanced 6.7 per cent to $3 on Tuesday, as its June quarter results revealed the cash operating margin in its business was $US74.30/dmt or 53 per cent.

The Quebec iron ore producer said it had greatly benefited from depressed freight prices, which were at multi-year lows during the recent quarter, and higher iron ore prices.

Mount Gibson Iron (ASX:MGX) increased production at its restarted Koolan Island operation to 805,000/wmt in the June quarter, up 48 per cent on the March quarter.

The company realised a free-on-board (FOB) price of $US97/dmt for its higher grade 65 per cent Koolan fines product in the June quarter.

Australian ore in demand

Chinese steel mills are big buyers of Australian iron ore, and prices for their product have been rising allowing them to pay more for inputs such as iron ore and coking coal, both exported by Australia.

The Shanghai Futures Exchange’s contract for steel reinforced bar or rebar traded at 3,780 Chinese yuan per tonne ($758/t) on Tuesday, and is up 14.5 per cent from April lows, according to Trading Economics.

The strength of Chinese demand for Aussie iron ore is reflected in export volume data for Australia’s four largest iron ore producers for July.

Big four iron ore exporters

Known as the ‘Big Four’ in mining circles, BHP (ASX: BHP), Fortescue Metals Group (ASX: FMG), Rio Tinto (ASX:RIO) and Roy Hill, shipped a massive 71.1 million tonnes of iron ore last month.

Export data shows a rise of 4 per cent compared with July 2019, according to a report from Swiss bank UBS.

“This represents a run rate of around 837 million tonnes per annum,” UBS analysts said.

Year-to-date shipments from these four iron ore miners stand at 493 million tonnes, up 5 per cent on January-July 2019.

BHP and FMG increased their iron ore shipments in July on a year-on-year basis by 10 per cent to 24.9 million tonnes and 9 per cent to 14.5 million tonnes, respectively, UBS noted.

Rio Tinto leads shipping volumes

BHP is currently shipping iron ore at an annualised rate of about 293 million tonnes and is running ahead of its volume of 281 million tonnes in the 2020 financial year.

Rio Tinto’s iron ore exports were 28.2 million tonnes in July, down 1.5 per cent on July 2019, and representing a run rate of 332 million tonnes.

“If Rio were to run at a rate of 340 million tonnes per annum for the remainder of 2020, shipments would be around 330 million tonnes, up 1 per cent year on year,” UBS said.

Shipments from Roy Hill declined 10 per cent compared to July 2019 to 3.4 million tonnes last month, and equivalent to a shipment rate of around 40 million tonnes/year. Roy Hill is 70 per cent owned by Gina Rinehart’s Hancock Prospecting.

Rival exporter Brazil has struggled during the COVID-19 pandemic, with its shipments declining 0.7 per cent year on year in July to 34 million tonnes, according to metals prices website Fastmarkets.

Traded prices for iron ore with a 62 per cent FE content have risen from $US99/dmt CFR China on July 1, Fastmarkets said.