Iron ore giants see downturn as opportunity

 
Rio Tinto's Yandicoogina stockyard in Western Australia's Pilbara region. Agence France-Presse/Getty Images

Rio Tinto’s Yandicoogina stockyard in Western Australia’s Pilbara region. Agence France-Presse/Getty Images

 
Michael Sainsbury
Nikkei Asian Review, August 6 2014

These are tougher times for the world’s iron ore miners. After four years of record prices, the commodity has fallen back to earth and is now selling at $95 per ton, down from $135 at the start of the year, as China’s economy – which consumes about two-thirds of the world’s ore — and its steel-hungry residential housing sector have weakened.

But this has not deterred the heavy hitters in the industry. Miners like Rio Tinto, BHP Billiton, Vale and Fortescue Metals Group are still digging in a bid to gain market share, just as their high-cost rivals in China and newer market entrants are struggling.

 The Brazilian giant Vale, for example, recently announced a $38 billion program to expand its iron ore production by 50% over the next five years, from 306 million tons a year currently. The company has just announced that despite record iron ore output in the second quarter, net income fell 43% from the previous quarter because of lower prices.

In Australia, Rio and BHP raised production by 10% and 4%, respectively, in the first half of this year, compared to the same period last year, as long-planned investment projects have come on stream. Both are forecasting further increases over the next 18 months. Read more…