Rio Tinto Says Major Miners' Iron-Ore Supply Lagging Expectations -- Commodity Comment

Rio Tinto PLC (RIO) on Friday recorded a sharp fall in second-quarter iron-ore shipments from Australia, while also notching year-on-year production declines for bauxite and copper. Here are some remarks from its operational report:

On iron-ore demand:

"The iron-ore price has remained resilient on a surge in demand while supply has struggled to keep pace. China's steel demand is up 5% year on year in the first half, with the construction and automotive sectors performing strongly. Consumption was also robust across the rest of the world, with demand recovering plus-15% in 2021 versus 2020.

On iron-ore supply:

"The major iron-ore producers' supply continues to lag expectations, while high-cost supply balances the overall market. Meanwhile, scrap is recovering from the lows in the first half of 2020, with global scrap consumption in the first half of 2021 set to rise 18% year on year as crude steel output and scrap availability improves."

On aluminum:

"The aluminum price has continued to be supported in tight physical markets with elevated LME [London Metal Exchange] and premia, and strong demand in global semis."

On copper:

"Copper prices have continued to rally driven by multi-year weakness in supply growth (at circa 1% year on year) and strong demand recovery in China and the rest of the world. Investor positions challenged all-time highs, although have since retreated from the first quarter peak."

On the global economy:

"We expect continued global recovery with most key indicators of economic activity back to pre Covid-19 levels. This follows supportive government policies and vaccine deployment success. We remain watchful of risks, in particular variant infection and vaccination rates. Rising inflation is primarily being driven by the current imbalances in supply and demand, as industry producers adjust activity following some disruption."

On China:

"China's economic growth is becoming more balanced on fading stimulus-related demand and tightening credit conditions. Consumption and non-real estate demand has continued to recover.

On the U.S.:

"Consumer confidence is rising in the U.S. as Covid-19 restrictions are reduced. Consumer demand is expected to rotate from goods towards services while supply gradually responds to stronger activity. Housing market growth is slowing from the peak in starts in the fourth quarter of 2020 and first quarter of 2021, albeit settling at a historically strong level."

On Europe:

"Economic indicators in Europe show a strong recovery is already underway, however some countries' reopening plans are at risk with the variant surge."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com


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  07-15-21 1923ET
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