Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Speaking to reporters at an industry conference in Qingdao China, the world’s largest iron ore miners said on Wednesday they have seen no weakness in demand from China. Forecasts for China’s imports by 2015 now top 1 billion tonnes – up more than 60% from 2010 – due to the relatively high cost and the low quality of its domestic supplies.
Firm demand from China’s construction sector and a drop off in India’s exports have been behind the strength in spot iron ore prices which, at above $170 a tonne, have trebled from late 2008. The big three – BHP, Vale and Rio Tinto – control nearly 70% of the annual iron ore seaborne trade and dominate price talks.
Rio told Reuters it has not received any requests from Chinese buyers to delay iron ore shipments, while Fortescue, the world’s fourth largest exporter, said global prices are expected to remain high next year before additional capacity comes online between 2013 and 2015.
MarketWatch quotes Tito Botelho Martins, executive director of Vale Canada as saying the outlook in all metals markets, including nickel, continues to be “extremely positive” and that the current situation in the markets is temporary.
Not everybody is so sanguine about the outlook for the market however. Reuters quotes Graeme Train, commodity analyst at Macquarie in Shanghai (pictured): “The risk though is even if China is buying iron ore and the situation ex-China gets really bad, not even China’s strength can hold the price up at where it is.”
MINING.com reported last month China’s 27 largest steel companies saw a 15.7% decrease in the first-half profits from a year earlier for a combined profit of $1.6 billion, according to the Shanghai-based researcher Wind Info, as soaring iron ore costs squeezed margins.
The woes of China’s steelmakers, which have been switching to cheaper low grade ore to cut costs as prices top $170/tonne, are in stark contrast to profits at miners. BHP Billiton’s iron ore division accounted for the bulk of its record $22 billion in annual profits reported in August.
Research consultants Wood Mackenzie said in July that Chinese construction spending won’t slow down until 2020 which will keep spot prices of iron ore above $150/mt through 2015.
