24/10/2014 – Iron ore price slump not slowing miners
IRON ore prices may be at a six-year low, but the world’s leading mining companies don’t show any sign of idling their diggers.
Brazil’s Vale, the world’s biggest iron-ore miner by output, said it was on track to produce a record amount of the steelmaking ingredient in 2014 despite a 40 per cent fall in the metal’s price this year.
Separately, the world’s second-largest producer, Rio Tinto (RIO), said it would extend the tenure of chief executive Sam Walsh, who has pursued a strategy of guarding market share despite slacker demand growth from key customers like China.
Meanwhile, BHP Billiton (BHP) boss Andrew Mackenzie defended the Anglo-Australian giant’s decision to stay the course, telling journalists on the sidelines of the company’s annual general meeting that it was economically rational for low-cost miners like BHP to continue producing because they could still achieve very high margins.
“We believe in free markets, we believe in being the lowest cost producer, and we don’t believe the lowest cost producer should be the swing producer,” Mr Mackenzie said.
“Completely wrong. Normally people collude to drive prices up,” Mr Mackenzie said.
Anglo American, the world’s fourth-largest producer of seaborne iron ore, has previously warned about the growing iron ore supply glut.
But these concerns haven’t stood in the way of Anglo raising its own output. Yesterday, the company said it produced 13 million tonnes of iron ore in the third quarter, up 37 per cent from a year ago.
The rise in iron ore output as prices fall has sparked criticism from within the mining industry. Glencore chief executive Ivan Glasenberg has said ballooning production is overwhelming demand.Others have warned that by not leaving some tonnes in the ground, mining companies risk damage to their future profits.
“Under the most pessimistic but still plausible scenario we can see a floor as low as $US66 a tonne,” Paul Gait, a research analyst at Sanford C Bernstein, said.
Mr Mackenzie said that making any assumptions about future prices was a “very dangerous game to play.” He said holding back output from already-producing mines in response to weaker demand would lead to higher costs and lower profit margins.
“Our intention is always to maximise the production from existing capacity, that is the way in which we’ve achieved some of the lowest costs,” Mr Mackenzie said.
Source – TheAustralian.com.au