Rio Tinto keeps eye on diesel prices as Pilbara iron ore exports hit fresh high

Rio Tinto is keeping a watching brief on the latest flare up of tensions in the Middle East as it counts the cost of soaring diesel prices that drove up production costs by about $180 million in the first half of the year.

The iron ore major said operational impacts remain limited as the US resumed its bombardment of Iran, with no material disruption to production or export supply chains across its core commodities.

But in its second-quarter production results released on Wednesday, Rio said the soaring cost of diesel, sparked by US and Israeli attacks launched on Iran earlier this year, had already added 80¢ a tonne to production costs across its Pilbara operations in the six months to the end of June as prices rose from $US85 to $US140 a barrel.

As fears grow the latest closure of global oil gateway the Strait of Hormuz could again send oil prices sky-high, Rio warned a $US10/b move in diesel prices could add 15¢/t to unit costs.

Oil rose for a third day overnight as President Donald Trump threatened further strikes, hours after the US resumed its blockade on the Islamic Republic’s shipping through the strait.

West Texas Intermediate traded around $US80 a barrel, after gaining 11 per cent in the week’s first two sessions, while Brent closed near $US85.

Mr Trump said that strikes against Iran would continue and that the US may hit power plants and bridges next week unless Tehran comes to the negotiating table.

Despite the upheaval in energy markets, Rio maintained iron ore cost guidance for the full year of between $23.50 and $25/t.

Chief executive Simon Trott said the miner’s scale, geographical diversification and supply chains continued to underpin its resilience and strong operational performance “despite ongoing geopolitical uncertainty throughout the period”.

“Conditions in the Strait of Hormuz remain highly volatile,” Mr Trott said.

“We continue to monitor developments closely and maintain contingency plans to address potential escalation or further disruption to global energy and logistics markets.”

Rio reported its highest first-half Pilbara iron ore result since setting a record in 2018, with shipments of 85.3 million tonnes in the second quarter.

That was up a solid 7 per cent from the previous three-month period as it recovered from cyclone Narelle in March, which knocked out one of its two jetties at the Cape Lambert port, and cyclone Mitchell in February, which also caused shipping delays.

Total Pilbara production for the first half came in at 162.3mt. It maintained full-year production across its global iron ore assets — including Simandou in Guinea — at between 343mt and 366mt.

More to come...