Iron ore kings spend again
Demand from their biggest customer shows little sign of easing
PERTH: The biggest iron ore producers in Australia are spending as much as US$10bil on mines so they can keep pumping out shipments to China as demand in their biggest customer shows little sign of easing.
Led by Rio Tinto Group, the nation’s top three exporters plan to add about 170 million tonnes of capacity to replace exhausted mines and are studying investments in infrastructure and equipment to boost exports to their long-term targeted rates.
Output will rise 9% to 843 million tonnes in 2022, according to Deutsche Bank AG estimates.
Forecasts of a slowdown in China’s steel industry are proving to be misplaced with BHP Billiton Ltd saying production hasn’t yet peaked and likely won’t do so until the middle of the next decade, while steel-making raw materials will continue performing well over the coming 12 months.
Iron ore prices are trading near a fourmonth high.
Rio on yesterday opened the US$338mil Silvergrass mine, the first of a wave of replacement operations in Western Australia’s Pilbara. The asset would help maintain output and cut costs, chief executive officer JeanSebastien Jacques said in a statement.
Australia will account for 56% of the global export market by 2019, from 54% last year, according to the government.
London-based Rio, the world’s second-largest iron ore exporter after Brazil’s Vale SA, has approved US$100mil of spending on replacements for depleted operations, and will consider a further US$1bil across the next three years, according to a presentation this month.
The producer is also studying US$4.4bil of potential development and maintenance spending, the filing said.
“We don’t have any issues in placing our products,” Jacques told reporters at Silvergrass.
“As far as we are concerned, the primary driver for us is the margins.” Rio’s iron unit had a margin on earnings before interest, tax, depreciation and amortisation of 69% in the first half, filings show.
A restructuring of China’s steel sector is boosting demand for higher-quality ore, including from Rio, according to Jacques.
“For them to continue to produce the right output, they need to have better quality raw materials, including the grades that we will produce at Silvergrass,” he said.
Output from the new mine will allow Rio to maintain output of its benchmark Pilbara Blend products, which accounted for 75% of first-half sales.
BHP will seek approval next year to spend as much as about US$3.2bil to develop its South Flank mine to replace 80 million tonnes of annual output. It would also spend about US$300mil on work to boost annual capacity in Australia to 290 million tonnes, Deutsche Bank estimated in a July note.
Spot ore with 62% content delivered to Qingdao declined 1% to US$76.36 a dry tonne on Tuesday, according to Metal Bulletin Ltd. Rio Tinto rose 0.2% to A$66.70 in Sydney, as BHP advanced 0.3% and Fortescue Metals Group Ltd, Australia’s No. 3 shipper, slumped 1.8%.
New spending by the world’s top miners remains a fraction of the amount deployed at the peak of China’s demand boom.
Rio invested US$22bil between 2009 and 2016 to expand its Pilbara mines and infrastructure, according to a June submission to an Australian government commission.