Rio Tinto upped annualised output of the steel-making raw material by 20% in October, while BHP Billiton and Fortescue Mining are in the midst of robust expansion work.
SYDNEY (REUTERS) – Australia’s “big three” iron ore miners are set to unveil a boost in third-quarter production and will mine even more in the fourth quarter, ignoring forecasts of a looming supply glut in favour of capturing greater economies of scale.
Rio Tinto this month upped annualised output of the steel-making raw material by 20 percent to 290 million tonnes, while BHP Billiton and Fortescue Mining are in the midst of robust expansion work.
All three already mine ore at costs well below selling prices — thanks to a combination of rich grades and high volumes — and see any dip in prices as simply weeding out less competitive rivals.
Rio Tinto, which is set to post a 3 percent rise in third-quarter output against the previous quarter to 53 million tonnes on Tuesday, is expected to announce a further mine expansion to 360 million tonnes a year by a Dec. 3 meeting with investors.
“With the iron ore price holding up well as we move into Q4, we expect to see continuing growth from this key driver of earnings,” said RBC Capital Markets analyst Chris Drew, pointing to resilient demand from China.
Fortescue is set to unveil on Thursday a 20 percent output increase to just under 30 million tonnes for the three months to end-September, and BHP Billiton a 4 percent rise on Oct. 24 to just under 50 million tonnes.
Output from the three companies accounts for about 70 percent of the seaborne iron ore trade, feeding strong demand from China that has pushed prices to record levels in recent years.
Despite persistent forecasts for a price fall due to greater supply and slower Chinese demand growth, benchmark 62-percent iron ore sold for at least $130 a tonne for much of the third quarter and now fetches $132, sufficient to generate healthy margins.
Rio Tinto and BHP, whose cash costs are projected by analysts at around $25 a tonne — down from $28 in the September quarter — need iron ore prices of only $50 a tonne to start generating positive cash flows, when freight and other fees are applied.
Fortescue, which typically sells its ore at a 12 percent discount to the benchmark price, requires a price of $75 a tonne for positive cash flow.
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