More jobs for the robots on mines
WHEN THE blood bath ends for the world’s iron-ore producers, those left standing probably will have more robots on their side.
Automated drills and driverless trucks are among the new tools employed by the four biggest companies, including BHP Billiton, in a bid to preserve profit margins during a bear market that began more than two years ago. Using more technology helped reduce costs at Rio Tinto by 8 percent since 2013, even as it boosted output by 5 percent, according to Paul Young, an analyst at Deutsche Bank in Sydney.
Improvements by top producers are defying a productivity collapse for the rest of the mining industry, which consultant McKinsey says declined as much as 28 percent in the past decade, forcing smaller operators to shut. With demand for iron ore slowing in China, the world’s biggest user, prices are probably headed lower as major suppliers expand output by tapping low-cost reserves, mostly in Australia, according to Citigroup.
The top four firms would see their share of the global market jump to 79 percent in 2018 from 64 percent in 2010, the bank said.
“Higher productivity is certainly an advantage” because those companies “would be the last ones to shut down in a lowprice environment”, said Jessica Fung, an analyst at BMO Capital Markets in Toronto.
The benchmark price of iron ore imported by China has plunged 69 percent from a peak of $191.70 (R2 591) a ton in February 2011 to $59.01 last week, heading for a third consecutive annual loss, according to Metal Bulletin. Even with the decline, top producers remain profitable.
The cash cost of mining the ore on average is $15.80 a ton at Vale, $16 for BHP Billiton, and $16.20 at Rio Tinto, according to company data compiled by Bloomberg Intelligence. With big companies still making money on iron ore, seaborne supply would exceed consumption by 58.1 million tons this year, and that surplus would peak at 107.4 million tons in 2018 and persist through 2020, Morgan Stanley said June 22.
The race to increase market share as prices drop had already intensified competition among mining producers.
Andrew Forrest, the founder of Fortescue Metals Group, said on August 24 that expanding output was causing “self-harm when industry leaders do it”. The persistent oversupply was “damaging the credibility of the industry”, Glencore chief executive Ivan Glasenberg said in May.
Smaller, higher-cost mines have been forced to scale back. Cliffs Natural Resources, the largest US producer, halted operations at Bloom Lake in northeastern Quebec in January. Other mines that were idled include Sinosteel Midwest’s Blue Hills in Australia and IMX Corporation’s Cairns Hill, Goldman Sachs said in June. – Bloomberg