Iron Ore Price, page-8298

BHP production unlikely to meet target: Macquarie

• DANIEL PALMER
• The Australian
• 12:19PM May 27, 2016

Macquarie analysts have raised doubts over BHP Billiton’s capacity to meet its iron ore production forecasts, while labelling recent weakness in the stock of Fortescue Metals and Rio Tinto as a buying opportunity.

In a note to investors this morning, Macquarie Wealth Management said its port tracking data pinned BHP to a production rate below the mining giant’s most recent forecast.

The commentary comes after BHP last month slashed its forecast for WA iron ore shipments by 10 million tonnes (mt) to 260 million.

“To hit this target BHP needs to ship 67mt in the fourth quarter,” Macquarie said.

“Our port data suggest BHP is currently running at a 60mt run rate for the quarter, implying FY16 shipments could come in closer to 25mt, about 17mt below its original target.”

Macquarie consequently trimmed its projection to 255mt for the miner.

The picture is brighter at Fortescue as port data point to record shipments in the fourth quarter of the financial year, with a current run rate of 175 million tonnes per annum.

“Macquarie’s latest proprietary port data indicates that Fortescue is continuing to operate at strong levels, and is on track to beat our FY16 shipment guidance by 2-3mt,” the note read.

Rio Tinto was broadly on track to meet its 2016 guidance of 330 million tonnes, Macquarie added, after a pick-up in supply through the June quarter.

The investment bank retained its ‘outperform’ ratings on both Rio and Fortescue, while BHP remains its least preferred option in the space with an ‘underperform’ rating.

Macquarie recently upgraded itsfull-year forecast for average iron ore prices by 11.1 per cent to $US50 a tonne and believes any fall below $US50 a tonne represents a buying opportunity in Rio and Fortescue stock.

Prices dipped to $US49.90 a tonne in the most recent session, the first slide below $US50 since the end of February and well off recent highs near $US70.

The commodity has not seen a positive session in the last six as investors fret over high Chinese stockpiles and rising supply from marginal producers.

Such concerns pushed Deutsche Bank to deliver an end-of-year forecast of $US40 a tonne this week, but Macquarie is more optimistic.

“The current weakness in iron ore prices could present an excellent buying opportunity, particularly if share prices overshoot to the downside if iron ore prices dip below $US50/tonne,” Macquarie said.

“We remain confident that a $US50/tonne price is sustainable for the rest of this year and highlight Fortescue and Rio as our preferred picks.”

The port data also revealed a sharp rise in shipments out of Gina Rinehart’s mammoth $10 billion Roy Hill project in recent weeks, with the current run rate of 30 million tonnes per annum outstripping Macquarie’s expectations.