Metals: Copper 0.0% to $4.32lb, Iron ore -0.54% to US$221.10/t,...

Metals: Copper 0.0% to $4.32lb, Iron ore -0.54% to US$221.10/t,

Energy: Brent crude +0.2% to US$73.6/bbl, WTI +0.2% to US$71.8/bbl

Key overnight stock moves: BHP LND -1.5%, Rio Tinto LND -3.4%, S32 (LDN) +0.4%, AAL -2.8%, GLEN -3.5%, Vale -2.1%, AA -4.6%, Shell -0.6%, BP -1.3%, XOM -2.8%, Chevron -2.6%, COP -2.8%

Global Indices: S&P 500 -0.75%, DOW -0.86% & FTSE -0.06%

RIO released a soft 2Q21 update with production below BofA estimates and reduced iron ore and copper guidance.

While we reduce our FY21e EBITDA by 7%, our forecasts are 5% and 52% above consensus in FY21 and FY22.

RIO will report 1H21 results on 28 July with iron ore once again expected to account for c.80% of underlying EBITDA.

We forecast 1H21 group underlying EBITDA of $21.2bn (+219% vs pcp) an underlying EBITDA margin of 64% and EPS of US$7.7/sh.

However, the focus will be on shareholder returns. We forecast an interim DPS of US$6.16/sh (vs US$1.55/sh pcp) well above consensus of US$4.29/sh.

With Rio now in a strong net cash position, offering a 16% FCF yield in 2021e and a lack of growth options, we believe an 80% payout for the interim dividend (incl. a special) is likely.

The 62% Fe Iron Ore Index was assessed at $221.10/dry mt CFR North China on July 16, down $1.20/dmt from July 15. Seaborne premiums for medium-grade fines remained under pressure from abundant secondary market offers. Several end-users said they expected production controls to be stricter in the second half of the year, persuading mills to resell cargoes with usage likely to decline. With the availability of cargoes on the secondary market, sources said they felt Pilbara Blend Fines cargoes were not cost competitive at premiums above $8/dmt. (Platts)

Rio Tinto faces a battle to achieve full-year guidance for its flagship iron ore business after heavy rain, labour shortages and a new approach to cultural heritage issues hit shipments. In a quarterly update on Friday, the world’s biggest iron ore producer said it exported 76.3m tonnes of the steelmaking ingredient in the three months to June, down 12 per cent on the same period a year ago. Chief executive Jakob Stausholm said Rio had faced “some challenges” at its Pilbara operations in Western Australia, including materially higher rainfall and coronavirus-related labour shortages that hampered its ability to close old mines and bring replacement projects into its system. (Financial Times)