The Pilbara Blend Bold Baatar, managing director, Iron Ore Sales - - PowerPoint PPT Presentation

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The Pilbara Blend Bold Baatar, managing director, Iron Ore Sales - - PowerPoint PPT Presentation

The Pilbara Blend Bold Baatar, managing director, Iron Ore Sales & Marketing and Marine Singapore Iron Ore Week 19 May 2016 First Iron ore shipment from Dampier August 1966 2 Cautionary statement This presentation has been prepared by


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The Pilbara Blend

Bold Baatar, managing director, Iron Ore Sales & Marketing and Marine Singapore Iron Ore Week 19 May 2016

First Iron ore shipment from Dampier August 1966

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2

Cautionary statement

This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”). By accessing/attending this presentation you acknowledge that you have read and understood the following statement. Forward-looking statements This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Rio Tinto Group. These statements are forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, and Section 21E of the US Securities Exchange Act of 1934. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, “target”, “set to” or similar expressions, commonly identify such forward-looking statements. Examples of forward-looking statements include those regarding estimated ore reserves, anticipated production or construction dates, costs, outputs and productive lives of assets or similar factors. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this presentation. For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for our products, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, the effect of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty. In light of these risks, uncertainties and assumptions, actual results could be materially different from projected future results expressed or implied by these forward-looking statements which speak only as to the date of this presentation. Except as required by applicable regulations or by law, the Rio Tinto Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward-looking statements will not differ materially from actual results. In this presentation all figures are US dollars unless stated otherwise. Disclaimer Neither this presentation, nor the question and answer session, nor any part thereof, may be recorded, transcribed, distributed, published or reproduced in any form, except as permitted by Rio Tinto. By accessing/ attending this presentation, you agree with the foregoing and, upon request, you will promptly return any records or transcripts at the presentation without retaining any copies. This presentation contains a number of non-IFRS financial measures. Rio Tinto management considers these to be key financial performance indicators of the business and they are defined and/or reconciled in Rio Tinto’s annual results press release and/or Annual report.

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The market 3

Developed market weakness impacted ex-China

Million tonnes annualised

China’s imported ore remained steady

Million tonnes annualised

200 400 600 800 1,000 2014 H1-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 2014 World ex-China crude steel production

China’s net steel exports stable at ~100Mt/a

Million tonnes annualised

* Total Iron ore requirements – imported ore consumption

200 400 600 800 1,000 2014 H1-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 China steel consumption China steel net exports

Source: Company reports, GTA, WSA, Mysteel and Rio Tinto analysis.

25% 21% 21% 20% 21% 20% 19% 19% 400 800 1,200 1,600 2014 H1-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Domestic ore consumption* Imported ore consumption Domestic share (3MMA, RH axis) 19% 15% 17% 10% 16% 23%

~1.7

billion tonnes

Majors accounted for ~51% of 2015 supply

Percentage of contestable iron ore market

= 51%

Rio Tinto BHP Billiton Vale

= 49%

China Rest of market FMG

Weakness in China and developed markets impacted ore demand in 2015

The Pilbara Blend Our Pilbara business

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110

  • 95
  • 35
  • 20

1,600 1,650 1,700 1,750 1,800 1,850 1,900

2014 New Supply Marginal Seaborne China supply 2015 Demand vs 2014

High-cost iron ore supply continues to exit the market

CY2014 Production (Mt) CY2015 Production (Mt)

  • There was ~110Mt of additional low cost ore

supply added to the market in 2015, displacing higher cost ores

  • We expect new supply entering the market in

2016 to be offset by continued exits of marginal production

  • Seasonally low steel stocks at traders and

mills - limiting downside to steel demand

4

  • 5

10 15 20 25 30 35 40 W1 W11 W21 W31 W41 W51 2012-2015 2016

Iron ore market balance

Million tonnes

China’s iron ore production

Million tonnes

China steel stocks at traders and mills

Million tonnes

Source: Mysteel, CISA, Rio Tinto Analysis

The market The Pilbara Blend Our Pilbara business

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China’s steel mill profit margins have improved considerably this year, stimulating production

  • Chinese Government stimulus since mid-2015 in the form of lending, monetary

easing, and support to property and infrastructure sectors, has boosted Chinese steel demand and prices

  • China’s steel demand and production increased in March and April
  • 300
  • 200
  • 100

100 200 300 400 500 600 700 800 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16

Private Billet Margin Private Rebar Margin SOE HRC Margin 5

744 704 645 658 742 760 98 115 112 97 110 104 550 600 650 700 750 800 850 900 1H15 2H15 Jan-16 Feb-16 Mar-16 Apr-16 China steel consumption China steel net export 842 819 852 756 755 864

China’s crude steel production breakdown

Million tonnes annualised

China steel mill profit margins

RMB/tonne

Source: Mysteel, RTIO Analysis

The market The Pilbara Blend Our Pilbara business

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The Pilbara - a fully integrated system…

6

Leading edge technology ~30TB analysed by the OC per month Ship Load & Haul Process Drill & Blast Rail > 300 million tonnes

  • re shipped annually

> 15,000 kilometres rail travel per day ~1 billion tonnes rock moved per year > 12,000 kilometres drilled each year 1 2 3 4 5 Equivalent to the diameter of the earth Almost a return trip on the Trans-Siberian railway RUSSIA Cargo shipped through the Panama Canal Enough to fill the MCG every two days > 400 kilometres of conveyors across the Pilbara 8 times the length of the Channel Tunnel

Note: approximate comparative estimates based on publically available information

The market The Pilbara Blend Our Pilbara business

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Blending consistently reduces variability

Stockpile stacking and reclaiming Mines Port Terminals Products

The market The Pilbara Blend Our Pilbara business

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World class analysis and sampling

8

Ship (post blend) Mine/Rail (pre blend)

Alumina Silica Phosphorus

Fully automated iron ore port laboratory at Cape Lambert B ensures world class analysis and sampling

2015 product quality variability from mean

Percentage

The market The Pilbara Blend Our Pilbara business

  • We ensure our customers get the

products we have promised

  • Cape Lambert B has the world’s

largest fully automated iron ore port laboratory

  • Each shipment is sampled every

two minutes and over eight tonnes

  • f material is collected and

handled by robots that analyse chemistry, size and moisture, ensuring accurate invoicing

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Reported spot transactions

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Pilbara Blend Fines is the industry reference iron ore

  • Spot liquidity is fundamental to

support price formation

  • The 62% Fe segment is the most

liquid segment in the spot market

  • PBF is the most traded product in

the 62% Fe market

  • Anecdotally, some of our

customers refer to the Pilbara Blend as the USD equivalent in the iron ore industry

  • PBF spot price outcomes

consistently outperform the market

  • n a fixed price and floating price

basis

Reported spot transactions of 62% Fe products

355 360 233 189 72 48 2015 2016 YTD annualised PBF Other Aust. 62% Fe fines Brazilian 62.5% fines

Source: S&P Platts, Metal Bulletin, Argus, Rio Tinto analysis

The market The Pilbara Blend Our Pilbara business

  • 10
  • 5

5 10 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Delta to Platts 62% ($/dmt)

Platts 65% Fe Platts 62% Fe MBIO 58%+P 65% Transactions 62% Transactions 58% Transactions

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Lump is an important value driver

  • Premium lump products remain in

scarce supply

  • The YTD Platts lump premium has

averaged ~$8/dmt above the 62% Fe index

  • Lump demand in China should
  • utperform iron ore growth due to:

− Exit of domestic concentrate − Evolving burden practises − Increased environmental regulation

  • Rio Tinto is the largest supplier of

lump with 89 Mt of Pilbara Blend lump and Robe Valley lump shipped in 2015

20 40 60 80 100

Ave: $51 Ave: $59

Jan-Apr 2016 iron ore price range

US$/dmt CFR

20 40 60 80 100 PBL RVL

Major iron ore lump products in 2015

Million tonnes

Rio Tinto Peer 1 Peer 2

Source (top): S&P Platts Source (bottom): Company reports, Rio Tinto analysis

62% index Lump

The market The Pilbara Blend Our Pilbara business

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62% Fe segment is most liquid reference point with Pilbara Blend Fines as the market’s leading brand Credibility Integrated planning and blending sustains class leading quality control for our products Allows us to optimise volume, mine development, and production planning over the long-term Consistency Predictability

Summary of the value of Pilbara Blend

Pilbara Blend is the industry reference iron ore Currency

The market The Pilbara Blend Our Pilbara business