Rinehart's iron ore mine won't reach capacity this year

[MELBOURNE] Billionaire Gina Rinehart's iron ore producer said its mine in Western Australia won't reach full capacity this year following issues at its port and processing plant. Iron ore futures gained.

The target of 55 million metric tons a year is now expected to be reached early in 2017, instead of late this year, Roy Hill Holdings Pty chief executive officer Barry Fitzgerald told reporters Wednesday at the mine in the Pilbara region. The producer experienced some faults with components at its port and is addressing some construction issues related to the processing plant, he said.

"We set an aggressive target to try and get there by this year. We have not made that," Mr Fitzgerald said. "We will go reasonably close to it." Roy Hill is raising output after it began shipments in December from Australia's largest single iron ore mine. The commodity has rallied in 2016, confounding a slew of predictions earlier in the year that lackluster demand in China and rising low-cost supply would combine to drag prices lower.

China's government stimulus is helping to support steel demand, though is aimed more at "maintaining capacity, rather than increasing capacity," Mr Fitzgerald said. Almost 90 per cent of output from Roy Hill is under long-term contract, including more than half earmarked for partners outside China, the producer said last year.

Futures on China's Dalian Commodity Exchange rose to as high as 396 yuan a ton in trading Wednesday and were 0.1 per cent lower at 393 yuan a ton at 4:15 pm in Sydney. Iron ore with 62 per cent content delivered to Qingdao in China declined 2.9 per cent Tuesday to US$56.09 a dry ton, the lowest since July 22, according to Metal Bulletin Ltd.

The impact of new seaborne supply - including from Roy Hill - won't have as much influence on prices as forecast, according to Cliffs Natural Resources Inc, the biggest US producer. Iron ore will probably be sustained between US$50 and US$60 a ton, Chief Executive Officer Lourenco Goncalves said in an interview this week.

BHP Billiton Ltd, the biggest mining company and No 3 iron ore shipper, sees prices as likely to retreat as new supply arrives into the export market from Brazil and Australia.

BLOOMBERG