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May 2, 2017 4:15 pm JST
Aussie iron ore giants remain bullish despite price drop
Big miners lifting output on optimism about long-term demand from China, India
KAORI TAKAHASHI, Nikkei staff writer
Supply growth has added to the picture. Brazil's Vale began operating one of the world's biggest iron ore mines in the northern part of the country late last year. This has raised production for the world's No. 1 iron ore miner to record levels, further putting downward pressure on prices.
Regardless, Aussie miners are working toward lifting production in the belief that global demand still has plenty of room to grow over the long term.
Although the pace may slow, the growth in Chinese demand for steel will continue, Edgar Basto, a BHP Billion executive in charge of iron ore mining operations in Western Australia, said during a speech in March.
"In the long term, we expect the global steel market will grow modestly, supported mainly by incremental demand from India and other populous emerging markets, including elsewhere in Asia," he continued.
Steel demand in China carries some uncertainty going forward, since government-led initiatives hold large sway. But "steel stock per capita in China still lags behind that in the U.S. and Europe," Busto said, adding, "China's steel stock will need to continue to grow for its continued economic development."
A World Steel Association report on preliminary crude steel production volumes for March indicates that India surpassed Japan to reach No. 2 in the world after China, with the South Asian country's tally advancing 8.2% on the year to 9 million tons.
The Indian economy has been growing at around 7% a year. Just like in China, automobile-related demand and infrastructure development have been driving India's steel production increase. The country has domestic iron ore mines, but Australia has become an important source of steel raw material because its output at home is not enough to satisfy demand.
Automation, IT fueling cost reductions
Australian miners' optimistic outlooks also stem from falling production costs.
At Fortescue Metals, the current production cost per ton of iron ore has fallen 12% from a year earlier to roughly $13. The figure stands at $13.7 for Rio Tinto and about $15 for BHP Billiton, all sharply lower than several years ago.
Various efforts to boost productivity are behind those cost reductions. For instance, the Australian mining companies have lowered transportation costs between mines and ports by improving freight rails.
At Rio Tinto, efforts have been made to enhance the efficiency of mine operations by increasing the use of automated dump trucks and other mining equipment. Drones are being used to check the conditions in mines. Information technology has also helped to boost mining efficiency. Mine workers can now use smartphones to check the operation status of dump trucks and other mining equipment in real time and coordinate their work to lift productivity.
According to Rio Tinto CEO Jean-Sebastien Jacques, efficiency is a key focus when the company works to bolster production. It aims to raise output without making large capital investments by eliminating waste in the production process.
Also contributing to the Aussie miners' positive outlook is experts' view that iron ore prices are unlikely to fall further. Having been oversold, iron ore prices will readjust and remain in the range of $70 to $80 per ton this year, an official at Australia and New Zealand Banking Group predicted.
Nikkei staff writers Wataru Kodaka in Shanghai and Naoyuki Toyama in Sao Paulo contributed to this story