Ore miners to face rough weather from global glut: BHP
06 October 2014
Rival iron ore miners would be among the biggest casualties as the largest suppliers increased low-cost production adding to a global glut, according to BHP Billiton Ltd, Bloomberg reported.
The market for the steel-making material was undergoing a major upheaval that was squeezing high-cost producers and would probably halt development of major new mines, according to BHP, the third-largest exporter.
With expansion at BHP, Rio Tinto Group and Vale SA (VALE3), the three dominant exporters, a slump in prices to a five-year low had already set in.
''We have to deliver value, and in the pursuit of doing that unfortunately businesses, which are on the wrong end of the cost curve, or which should have never started up in the first place anyway, will be impacted,'' BHP Iron Ore president Jimmy Wilson told reporters on Friday. ''We take no joy from that.''
The increasing global surplus, projected by Goldman Sachs Group Inc to more than triple from 52 million metric tons this year to 163 million tons in 2015, comes as a property slump and tight credit conditions dampened demand growth in the biggest consumer, China.
According to a report last month by Macquarie Group Ltd, declining prices had prompted a battle for survival between Chinese domestic and high-cost seaborne ore.
Meanwhile, BHP was planning to cut its unit cost of iron ore production from $25.89 a tonne to less than $20, announced today, largely through ramping up automation rather investing huge amounts on capital-intensive projects, Business Spectator reported.
However Rio Tinto would not be expected to easily give up its title as Australia's lowest-cost iron ore producer.
The company had in August confirmed it had cut its unit costs by 11 per cent in the first half to $20.40 a tonne, just short of BHP's 'medium-term' target.
Automation is expected to play a big part in BHP's cost cutting strategy. The company currently has nine driver-less trucks on trial at its Jimblebar mine and one autonomous drill rig at Yandi.
Driverless trains would take some time to come, but the miner is likely to put these on a trial basis before too long.
Business Spectator quoted a BHP spokesperson that with the introduction of the autonomous drill rig, the miner had achieved a 10-per cent increase in metres drilled per shift. Once automated drill rigs were brought in across the board, the miner should see significant productivity gains as also huge job losses.