BHP, Rio Tinto, Fortescue & Vale – the big players dominate global iron ore trade markets
Despite a global supply glut which has depressed global prices, we see the big Australian iron ore mining companies continue to squeeze junior producers out of the market – thereby increasing their share of global trade.
Mining operation costs for Rio, BHP, Fortescue and Vale remain low enough to maintain a reasonable profit margin on each tonne shipped, despite the current low prices. The last thing these big four mining are keeping production rates high because they don`t want to let their current market share to slide.
Noticeably, the world’s four biggest iron-ore suppliers, Rio and BHP, Brazil`s Vale SA and Australia`s Fortescue Metals Group “” accounted for 71 percent of global seaborne iron-ore shipments back in 2014.This figure was up from an average of 65 per cent from 2009-13. New figures indicate that the big four mining companies could increase that share to 80 per cent by 2018.
With production on the increase there is no sign they are preparing to take their hand off the production lever.
BHP said its iron-ore production rose 14 percent to a record 233 million tonnes in its 2014 – 2015 fiscal year, and forecast another 6 percent growth in the year ahead.
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Rio indicated it plans to increase its iron ore production output from its Pilbara mining operations in Western Australia to a staggering 360 million tonnes over the next two of years.Its output was some 280 million back in 2014, effectively adding 100 million tonnes to its output. Brazilian owned Vale, has said it plans to produce 450 million tonnes of iron ore by 2018, which is around a 35% increase from its 2014 output.
In 2015, the iron ore mining business flipped on its head as China`s demand plummeted. With it prices have slashed to a low $US52 a tonne, close to their lowest level in over 10 years. The big four mining companies are throwing the dice once again and taking a punt to produce as much ore as possible even at a low price, rather than extract less in hopes of bolstering selling prices as the market tightens.
Despite high production and low extraction costs even BHP reported a 35 percent drop in profit from its iron ore operations from July 1 to December 31 2014.
Both BHP and Rio are generating their lowest level of returns on equity since the 1980s with their shares trading close to six-year lows.
Defending the increases in Australian iron ore production rates, Rio and BHP say their expansion programs were orchestrated years ago and were conceived in the best interests of their shareholders. Should there be a 180 degree change in direction, it would shine the light on company executive who could be forced into an investor backlash.