BHP Sounds Warning as Casualties Mount in Iron Ore Price War – by Thomas Biesheuvel and Jesse Riseborough (Bloomberg News – February 24, 2015)

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(Bloomberg) — The first fractures are appearing in an escalating iron ore price war that’s putting more producers out of business.

The biggest mining companies led by Rio Tinto Group, BHP Billiton Ltd. and Vale SA have persisted with multi-billion dollar expansion plans, citing still-healthy earnings even in the wake of a price collapse. Now, for the first time, one of the big three has voiced concern they may have gone too far.

“I do fear that other competitors have an awful lot more capital waiting in the wings to invest in expanding,” Andrew Mackenzie, chief executive officer of BHP, the world’s largest mining company, told analysts on a conference call on Tuesday after reporting a 35 percent decline in underlying profit from his iron-ore division. “We do look to the future and see a degree of pressure downwards on iron-ore prices.”

BHP, Rio and Vale have been squeezing smaller rivals in their quest for market share, while demand growth in China, the biggest consumer, slows. From Sierra Leone’s jungle to Sweden’s Lapland, abandoned mines are beginning to dot the global landscape.

“They wanted to make sure no one else entered the market and to maximize their own market share,” said Seth Rosenfeld, an analyst at Jefferies International Ltd. in London. “They’ve now done that as they’re expanding and no one else is.”

Having embarked on $120 billion of spending on new projects since 2011, the biggest producers have so far refused to blink in the face of a worsening outlook.

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Plans to expand giant rail, port and mine projects in Australia and Brazil are largely undisturbed, with the miners content to see higher-cost rivals go out of business before they rein back investment in their most profitable divisions.

While Mackenzie said BHP is “all but done on investing” in iron ore, and will focus on oil and copper projects, the company is progressing with an expansion in Western Australia that will see it produce 225 million metric tons of iron ore this fiscal year. That’s double what it produced in fiscal 2007.

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