Rio Tinto Limited (ASX: RIO) released its first quarter results to the market this morning, and there may be a few surprises in there for analysts.
As covered by Fairfax media yesterday, a number of analysts were expecting Rio's first quarter iron ore production to top 80 million tonnes (Mt), but total production was only 74.7Mt.
(Total ore mined was 12% higher than in 1st quarter 2014, but 6% lower than fourth quarter 2014)
While the figure was impacted by a train derailment and unexpected severe weather, as readers can see the company is still some 13Mt short of the quarterly figures required to attain a 350Mt total output for the year.
As work at Rio's massive Pilbara expansion comes to a close, production should soar but it will be interesting to see if the company will still hit the 354Mt figure tipped by Deutsche Bank mining analyst Paul Young.
It seems possible, as one thing Rio won't be doing right now is putting the brakes on production. With further innovations like driverless trains and other automations being trialed at Rio sites, iron ore output is on the way up, and costs are on the way down.
BHP Billiton Limited (ASX:BHP) is following a similar path of aggressive expansion and cost-cutting, though it is some way behind Rio in terms of automation.
Deutsche Bank's Paul Young also expects BHP to beat its forecast production, estimating total ore mined could come in at 250Mt instead of the 245Mt forecast.
A total of 5Mt extra production may not sound like a lot, but realise that Rio and BHP are two of the three largest iron ore producers worldwide and this excess could have a profound effect on iron ore prices.
5Mt works out to be about 1.5% of BHP and Rio's combined production, and a bit under 1% of globally traded iron ore.
In an interesting albeit disturbing coincidence, I wrote back in November that falls in oil prices were helped along by as little as 1.5% oversupply in the world oil market.
With Rio and BHP completing massive iron ore expansions and potentially adding an extra ~1% to global ore supply in addition to their previous forecasts, potential investors should be very wary of the future of iron ore prices.
