LAUNCESTON, Australia, Jan 21 (Reuters) – The latest production reports from mining giants BHP Billiton and Rio Tinto hammer home an uncomfortable truth: No matter how much output increases and costs are cut, falling commodity prices triumph.
Both BHP and Rio Tinto released reports this week that met market expectations and re-affirmed production guidance for the world’s top two mining companies.
While it’s no doubt positive for the Anglo-Australian miners that they are successfully executing plans to boost output while containing costs, the numbers make for some sobering reading.
Rio Tinto, the world’s second-largest iron ore producer after Brazil’s Vale, said it expected to mine 330 million tonnes of the steel-making ingredient at its Western Australia mines in 2015 on a 100 percent basis, up from 280.6 million tonnes last year. (www.riotinto.com)
The average price achieved in 2014 was $84.30 a tonne, Rio Tinto said, which would yield revenue of about $23.65 billion, on a 100 percent basis from the Pilbarra region. Rio Tinto’s actual share of that would be about $18.95 billion, as some of its mined output accrues to partners.
And given the structural oversupply in the market and muted demand growth from top importer China, it seems unlikely that the price will rally significantly in 2015.
The Asian spot price for iron ore .IO62-CNI=SI was $67.40 a tonne on Tuesday, for instance, down 5.3 percent from the beginning of the year.
If iron ore averages around the current price, Rio Tinto’s 330 million tonne output would give about $22.24 billion, or about $1.4 billion less than what was achieved in 2014.
For BHP, the No.3 iron ore producer, the numbers are similar.
It expects to increase iron ore output to 245 million tonnes, on a 100 percent basis, in the 2015 financial year that ends on June 30. To that end it achieved 124 million tonnes of output in the half-year ended December 2014, a 15 percent jump on the same period a year earlier. (www.bhpbilliton.com)
BHP achieved an iron ore price of $70 a tonne in the half-year to December 2014, meaning revenue on the company’s share of its iron ore output was about $9.34 billion. In the same period a year earlier it received $112 a tonne, giving revenue of about $10.9 billion.
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