Clyde Russellis a Reuters market analyst. The views expressed are his own.
LAUNCESTON, Australia, May 20 (Reuters) – If you ever needed an example of the corporate herd mentality, then look no further than the stampede of cost-cutting among commodity producers started by BHP Billiton.
Since the Anglo-Australian miner moved last August to scrap or delay projects and slash operating costs, mining and energy companies have been rushing to do the same.
In the past few months, no less than $15 billion of cuts in capital and operating expenditures have been announced, and this is likely just a small percentage of reductions still to come.
What started as concern among investors in BHP Billiton and its fellow Anglo-Australian miner Rio Tinto over excessive capex amid slowing demand growth for commodities from top consumer China has spread across the world.
In recent weeks several Canadian miners have announced cuts to capex, and newly-merged Glencore Xstrata has promised aggressive cost-cutting, with some investors confident it will exceed its target of $500 million in reductions.
And it’s not just miners joining the cost-cutting frenzy, with Singapore-listed commodity firms Olam International , Wilmar International and Noble Group announcing cuts up to about a combined $2 billion in capex.
Wilmar isn’t a mining company at all, rather being focused on agricultural commodities such as palm oil and soybeans, and while Noble and Olam both own assets, their core strength is in supplying commodities to customers.
Even energy companies have been trimming costs despite not being as adversely affected by the concern over slowing growth for Chinese demand for resources, which has mainly focused on metals such as copper and bulk commodities like iron ore and coal.
Heavyweight Exxon Mobil has said it would lower capex 4.5 percent to $38 billion this year and for the “next several years” from 2012’s $39.8 billion, while U.S. oil and gas explorer SandRidge Energy said in early May that it would cut spending by $300 million to $1.45 billion this year, revising a February estimate.
Cutting costs has replaced developing new projects as the mantra of resource companies, and it’s likely that far more is to come.
While Australia has $188 billion of liquefied natural gas projects approved and under construction, the chances that more will be sanctioned are dimming.
Already Woodside Petroleum, the nation’s largest oil and gas producer, has shelved its Browse LNG project in Western Australia, saying the economics no longer stack up.
Speculation is also mounting that Royal Dutch Shell and its partner PetroChina will defer their $20 billion Arrow LNG project in Queensland, on Australia’s east coast.
The Arrow venture is the last of the four coal-seam gas to LNG projects planned for Queensland and rising costs and difficulties in securing adequate gas supplies may make it more viable for Shell to scrap building its own plant and instead sell gas to a rival operator in exchange for an equity holding or offtake agreement.
For the rest of this column, click here: http://uk.reuters.com/article/2013/05/20/column-russell-commodities-spending-idUKL3N0E10H720130520