MARKETS SPECTATOR: Miner excitement

With production reports landing today, the market will be honed in for any clues on bulk commodities pricing as well as comments from Fortescue chief Nev Power.

Third quarter production reports from Australian miners kick off today with the ‘fourth force’ in iron ore, Fortescue Metals Group, due this morning and diversified giant Rio Tinto set for 1500 ADST.

Whilst the bulk of the production reports are backward looking, there will be extra focus on the outlook for the bulk commodities markets (iron ore, coal) given how volatile the recent quarters have been. Any positive comments on the near-term outlook and/or pricing should be received well by the market.

With iron ore contributing about 75 per cent to Rio’s 2012 EBITDA, it is going to be crucial to overall sentiment and how the market digests this afternoon's numbers.

From a production point of view, the market is looking for a strong start to the second half of 2012 for Rio, which seasonally sees volumes rise across the board. Deutsche Bank has forecast third quarter iron ore production of 64.7Mt, or about a 5 per cent increase from the second quarter. Elsewhere, coal and copper production are forecast by Deutsche to rise by 9 per cent and 15 per cent respectively, quarter on quarter to 8.5Mt and 150.4Kt.

We note that full year 2012 copper production was downgraded to 580Kt from 600Kt in the second quarter operations review. The market will be keen to see signs that production is on the up so that the revised full year production forecasts look achievable.

Forecasts for Fortescue are harder to come by but UBS has said it is expecting iron ore production of 14.5Mt for the third quarter, down by about 15 per cent on quarter but up 20 per cent year-on-year. As long as the production numbers are roughly in line with estimates, the outlook and comments from chief executive Nev Power are likely to be more critical.

The market will be looking for further clarification about the possible restart at the Kings deposit as well as comments about the volatile iron ore price environment.

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