In a week dominated by miners’ quarterly and annual economic results, the Reserve Bank of Australia (RBA) made headlines with a pivotal policy decision. Australia's central bank cut interest rates by 25 basis points to 4.1 percent for the first time in more than four years on Tuesday but warned that it was too early to declare victory over inflation, maintaining a cautious stance on further easing. The central bank expressed growing confidence that inflation is moving sustainably toward the midpoint of its 2-3 percent target range, attributing this progress to the impact of higher interest rates in balancing aggregate demand and supply. However, policymakers highlighted an uncertain economic outlook, noting a slower-than-expected rebound in private demand and persistent structural headwinds. Australia’s economy is growing at its slowest pace since the early 1990s, excluding the Covid-19 pandemic, and continues to lag many of its global peers. The nation’s gross domestic product (GDP) expanded by just 0.8 percent year-on-year during the first three quarters of 2024, in stark contrast to the United States' 3.1 percent growth and the European Union's 1 percent expansion over the same period. The RBA also underscored significant global risks, including heightened geopolitical tensions and policy uncertainties that could weigh on economic sentiment. While most central banks have been easing monetary policy as inflation moves closer to their respective targets, market expectations for further rate cuts have moderated in recent months, particularly in the United States, where inflation remains a key concern for policymakers.
As the RBA moved to ease borrowing costs, BHP released its half-year results, reflecting the impact of weaker commodity prices on the miner’s profitability. BHP Group reported a 23 percent decline in first-half profit as lower prices for iron ore and steelmaking coal eroded earnings. The Australian mining giant declared an interim dividend of 50 cents per share, the lowest in eight years, underscoring the challenging price environment. Demand for commodities in developed economies remained subdued in 2024 due to sluggish industrial activity, weighing on global resource markets. Looking ahead, central banks’ ongoing rate cuts are expected to facilitate a gradual recovery in steel and copper demand across the OECD in the near term. However, potential trade tensions pose a risk to the sustainability of this recovery, with supply chain disruptions and shifting trade policies adding to the complexity of the global outlook, according to the BHP. Meanwhile, China has reiterated its commitment to a pro-growth policy stance, deploying more accommodative monetary measures alongside proactive fiscal interventions. In response to external trade uncertainty, Chinese policymakers have pledged to stimulate domestic demand through various initiatives designed to support steel and metals-related manufacturing sectors. While China’s property sector remains a key source of weakness, recent data suggests that housing sales have shown tentative signs of stabilization, offering a glimmer of hope for a sector that has been under sustained pressure, according to the Australian multinational mining company. India, on the other hand, continues to be a bright spot for commodity demand. While a marginal cyclical slowdown is anticipated in the Indian economy over the next two years, its structural growth prospects remain robust, underpinned by strong infrastructure investment and industrial expansion.
Following BHP, Rio Tinto reported its smallest full-year underlying earnings in five years on Wednesday, with weaker iron ore prices overshadowing gains in its copper and aluminum businesses. The world’s largest iron ore producer posted underlying earnings of $10.87 billion for 2024, down from $11.76 billion a year ago. Rio Tinto, which continues to derive most of its profits from iron ore but is increasingly expanding its copper portfolio, declared a final dividend of $2.25 per share, below the previous year’s $2.58 per share. The company acknowledged the complex macroeconomic environment and the mixed demand picture for its products, with significant divergence across end-use markets. Globally, the property sector has remained under pressure, contributing to weaker steel demand. In China, the downturn in real estate has persisted for several years, with steel consumption down as much as 30 percent from its peak in 2020. However, traditional consumer and industrial sectors have remained relatively stable, providing some support for metals demand. Additionally, demand from the energy transition has emerged as a bright spot, driving growth in copper and aluminum markets while also sustaining investment in finished steel through renewable energy and power grid expansions. Despite these tailwinds, Rio Tinto emphasized that its financial results do not reflect a global economy operating at full capacity, highlighting the ongoing uncertainty surrounding commodity demand.
Vale followed with its fourth-quarter and full-year earnings, reporting a sharp decline due to lower iron ore prices and reduced sales volumes. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $4.1 billion in the fourth quarter, marking a 9 percent increase quarter-on-quarter but a significant 40 percent decline year-on-year. For the full year, Vale’s EBITDA stood at $15.3 billion, down 22 percent from the previous year. The average realized iron ore fines price was 21 percent lower year-on-year at $93 per tonne, reflecting the downward trajectory of benchmark prices. Iron ore shipments, which remain Vale’s core revenue driver, were flat quarteron-quarter but declined by 9.1 million tonnes year-on-year due to a strategic shift towards higher-margin products. In terms of production, Vale saw a 5 percent year-on-year decline in iron ore output during the final quarter of 2024, bringing total quarterly production to 85.3 million tonnes. However, full-year production reached 328 million tonnes, marking a 2 percent increase year-on-year and the highest annual output since 2018. The company reported a net loss of $694 million for the fourth quarter, compared to a net profit of $2.41 billion in the prior quarter, primarily due to impairments on base metals assets in Canada. Excluding these impairments and one-off charges, Vale’s net profit for the quarter would have been $872 million, still representing a significant year-on-year decline. Net revenue for the quarter was reported at $10.1 billion, a 22 percent decrease from the same period last year, underscoring the challenging market conditions facing the industry.
Amidst a difficult landscape for both mining companies and dry bulk shipping, the Baltic indices have staged a strong rebound from the seasonal lows recorded earlier this month. The Supramax segment has led the recovery, posting a month-to-date increase of 47.3 percent to $11,205 per day. Similarly, the Handysize Baltic indices have climbed by 43.5 percent since the first trading day of February, closing at $9,616 per day. The Panamax sub-market, which had been under significant pressure, returned to five-digit territory this week, concluding at $10,527 per day, representing a 40 percent increase month-to-date. The Capesize segment, while lagging in terms of monthly gains, still managed a notable rebound, settling at $8,216 per day, up 15 percent month-to-date. However, the forward market has been particularly active, with the prompt months of the Capesize forward curve attracting significant attention. Both March and April contracts have seen strong upward momentum, reflecting improving market sentiment and growing expectations for a recovery in iron ore shipments. While the dry bulk market remains exposed to macroeconomic headwinds and evolving trade dynamics, the recent uptick in freight rates suggests a more optimistic outlook for the months ahead.
Data source: Doric