Why are Rio Tinto's iron ore shipments staring at disruptions?

Two tropical cyclones off the coast of Western Australia have complicated Rio Tinto's efforts to repair infrastructure damaged by a previous cyclone last month. 

The company said on Tuesday it had begun clearing iron ore ships from two Western Australian ports as the cyclones swell seas, according to a Reuters report.

A Rio spokesperson told Reuters:

Rio Tinto cautioned in December that its iron ore shipments for the first quarter could be impacted by disruptions to its rail operations.

These disruptions were caused by record rainfall along Western Australia's Pilbara coastline due to Tropical Cyclone Sean.

Rio's guidance may be at risk

The miner stated that port clearance is exacerbating systemic difficulties and high stock levels, as repair work continues on the East Intercourse dumper, which sustained flood damage from Tropical Cyclone Sean in January.

The Western Australian cyclone season runs from November to April. RBC Capital Markets analyst Kaan Peker told Reuters that the damage from Tropical Cyclone Sean must have been significant if it took longer than the typical one to two weeks to repair.

He said:

He also added that if the repairs took longer than three to four weeks, they likely wouldn't be able to catch up in the second half. Therefore, Rio's guidance may be at a minor risk.

The world's largest iron ore producer anticipates increased iron ore production from its Pilbara operations this year. The expected output ranges between 323 million and 338 million metric tons, compared to 328.6 million tons last year.

A Rio spokesperson stated on Tuesday that the company's production guidance is unchanged. 

Rio had previously announced on January 24 that it was working to lessen the impacts of Tropical Cyclone Sean, and would provide an update on February 19 during its full-year results announcement.

Prices may rise

The iron ore price could see a risk premium added due to news of Rio's port struggles, Reuters quoted Peker in the report. 

This is because Chinese steelmakers did not accumulate large iron ore inventories in advance of the Lunar New Year, which is coming to an end.

Demand is expected to increase as industry resumes after the holiday.

Iron ore futures rebounded from three-month lows of about $97 a month ago to trade around $105 a ton on Tuesday.

Rio's export ports, unlike Port Hedland, are located further south on the Western Australian coastline.

Port Hedland, the country's top iron ore export hub, is used by BHP, Fortescue, and Hancock Prospecting, and has not been cleared due to the recent cyclones.

The Australian weather bureau predicted that Tropical Cyclone Taliah would likely stay a severe tropical cyclone in the near future, but was confident that it would remain far from the Western Australian coast.