- Special Report: Syria's Islamists seize control as moderates dither
- Stocks, bond prices drop as Fed points to reduced bond buying
- Obama defends U.S. intelligence strategy in wary Berlin |
- Wall St. drops after Bernanke hints at slowing stimulus |
- Tropical Storm Barry forms in the southern Gulf of Mexico -NHC
UPDATE 2-BHP iron ore output shows clout of mega miners
* BHP says to lift iron ore output 5 pct this year after flat Sept qtr
* Sees room to grow despite waning China market
* Posts 24 pct rise in copper
* Escondida copper mine heading for 20 pct boost
By James Regan
SYDNEY, Oct 17 (Reuters) - BHP Billiton is forging ahead with plans to boost iron ore output as low cost mining giants carve out a larger market share and undercut competitors struggling with slower growth from top buyer China.
The world's biggest miner joined rivals Rio Tinto and Fortescue Metals Group in pressing on with plans to dig up more ore despite risks stemming from cooling industrial activity and demand for steel in China.
Miners have in recent months been scaling back expansions and spending, raising concerns a decade-long mining boom in Australia is dead.
Iron ore prices have rebounded to around $114 per tonne from $87 in September thanks mainly to Chinese steel mills restocking depleted inventories. That's still well under the near-$200 a tonne ore fetched in early 2011.
"(The) commodity price boom is over and no one can deny it. We've now moved to the next phase of the cycle, which is an absolute focus on capacity and cost structures," Australia's resources minister, Martin Ferguson, told Reuters in an interview.
In its September-quarter activities report, BHP outlined plans to boost output by 5 percent by the end of June 2013, relying on the higher tonnages to reduce costs and cushion the impact of lower selling prices.
Over the past decade China has replaced Japan as BHP's biggest customer, particularly for iron ore, which can be mined more cheaply in Australia than at home.
Some 100 million tonnes of low-quality Chinese production had become unprofitable in the past month or two and ripe for closure, making room for more imported ore, even in a falling market, mining executives estimate.
BHP and Rio Tinto are not alone in racing to fill the Chinese gap. In Australia, Fortescue, Atlas Iron and BC Iron are also boosting production, though they face higher costs.
BHP and Rio boast some of the world's lowest production costs of around $20-$30 per tonne. That provides a strong competitive advantage against domestic Chinese production, which can run as high as $100 per tonne.
Official Chinese data shows between January and August, Australian iron ore imports to China rose 20 percent to 222.7 million tonnes.
Australian miners are also benefiting from restrictions on iron ore exports from India, which is attempting to keep its own steel industry well stocked with raw materials.
A shift away from once-a-year pricing of ore in favour of shorter term contracts two years ago is also now delivering lower returns on sales of more ore.
That's because the more ore is sold at spot, the less smaller suppliers can compete with the mega-producers -- namely Vale, Rio Tinto and BHP who enjoy vast economies of scale and together control more than 70 percent of the global seaborne market.
BHP reported steady September quarter iron ore production of 39.8 million tonnes.
COUNTING ON DEMAND
"The producers are obviously counting on demand remaining up," said Fat Prophets mining analyst David Lennox. "But the risk is if the pace of the slowdown in China GDP accelerates, creating less need."
Rio Tinto on Tuesday said it was sticking with its 2012 production target of 250 million tonnes after reporting September quarter output rose 5.6 percent from a year ago.
Fortescue, which also runs mines in the Pilbara area of Australia's northwest, plans to decide by December whether to restart work on its Kings mine, which could nearly double its output in two years.
But the outlook is uncertain as China's annual economic growth probably slowed for a seventh straight quarter in the July-September period to the weakest since the depths of the global financial crisis, a Reuters poll showed. China releases its GDP figure on Thursday.
COPPER OUTPUT UP
Outside of iron ore, BHP said its strategy of wide diversification in commodities was paying off.
"The release of latent capacity and robust operating performance across our diversified portfolio continues to underpin strong growth in our high margin businesses," it said.
BHP, the world's No.2 copper producer, said copper production in the quarter rose 24 percent from a year ago, with its majority-owned Escondida mine in Chile headed for a 20 percent production increase in fiscal 2013.
Also, coal output rose by 20 percent during the September 2012 quarter at its collieries jointly owned with Mitsubishi Corp.
Citi in a note said BHP's production data was in line with its estimates and maintained a buy recommendation on the stock, targeting A$36 a share. BHP was up 1.3 percent at A$33.49 at 0010 GMT.
That doesn't mean big miners won't feel the pinch.
Citi estimates BHP's net profit will tumble to $12.8 billion in fiscal 2013 from $17.1 billion the previous year.
- Tweet this
- Share this
- Digg this