International mining giant stepped up to snatch market

In the face of sharp price declines, reducing output and stabilizing prices is often the norm for the miners to protect the market. However, after the sharp drop in the price of iron ore, the traditional three major overseas mines not only did not reduce their production, but instead tried to dig out their production capacity in order to obtain profits in volume, which also achieved the purpose of seizing the market. In fact, the financial reports of the three major mines have also proved that such a low-cost "clean-up" approach has taken huge profits. However, industry insiders pointed out that this will make the market oversupply, low-cost iron ore further spread, and low-cost dumping is not a long-term solution, lack of continuous and orderly competition in the market will be a problem, iron ore prices will also be long-term commitment Pressure.

Low price "clear field"

After the sharp drop in iron ore prices, the mining giants not only did not reduce production, but their sales increased substantially. This seemingly contradictory phenomenon has a very objective reality behind it: it is profitable to sell large quantities of low-priced iron ore. Data show that in the first half of 2014, Rio Tinto, BHP Billiton, Vale, and FMG's four largest international miners produced a total of 469 million tons of iron ore, up 12.9% year-on-year; during the same period, China imported 457 million tons of iron ore, a year-on-year increase of 19.1%. .

Specifically, in the first half of this year, Rio Tinto’s iron ore production was 139.5 million tons, an increase of 9.78% year-on-year, and the shipment volume was 142.4 million tons, the highest record in the same period in history; FMG’s first-half output was 73 million tons. 70 million tons, an increase of 55%; BHP Billiton iron ore production 106 million tons, an increase of 20.51%; iron ore output of 151 million tons, an increase of 6.93%.

Looking at the financial reports of the four major miners: Rio Tinto's net profit for the first half of the year increased significantly by 156% to US$4.4 billion; BHP Billiton’s net profit for the fiscal year 2013/14 increased by 23% year-on-year to US$13.4 billion; FMG Group 2013/ In FY14, net profit increased by 57% year-on-year to 2.74 billion U.S. dollars, reaching a record level. Brazil’s mining giant Vale’s net profit in the second quarter of this year increased more than two times year-on-year.

According to industry sources, the mining giant is relying on its huge production cost advantage to continue to reduce prices to seize the market. It is reported that the cost of the traditional three major mines, Brazil’s Vale, and the iron ore produced by Australia’s Rio Tinto and BHP Billiton to China is approximately US$40/ton, while the market’s ore price is around US$90/ton, even lower than this price. When prices are sold, they can still make a lot of profits. However, in the face of high cost pressures, some small-scale miners are faced with the result that the ore cannot be sold at a high price, and the cash flow is difficult.

Rio Walton CEO Sam Walsh once said publicly: “Now is not the time for the best iron ore producers in the world to cut production. Instead, let other manufacturers really realize that the price of iron ore is changing for them. What are the impacts of operating costs so that they can make decisions?"

Heavy cake

According to reports from Reuters, China’s imports this year have grown rapidly as the output of the four major mines continues to increase. The impact of Rio Tinto and BHP Billiton’s rising production is reflected in the Chinese market, which has caused China’s iron ore imports from Australia to increase by 33.4% to 306.7 million tons while iron ore imported from Brazil has increased by 13.5% to 94.56 million tons. According to reports, Rio Tinto plans to increase output from 266 million tons last year to 295 million tons this year, and plans to reach 3.6 million tons by 2015. BHP Billiton plans to increase production to 245 million tons in the current fiscal year and to 290 million tons in the next few years. Vale hopes to increase production from 306 million tons last year to 450 million tons by 2018. The fourth-largest iron ore miner, FMG, is preparing to increase the production of mines in Western Australia from approximately 125 million tons in the previous fiscal year to 160 million tons.

For China, if the import level of iron ore is maintained in July, China's annual imports of iron ore from other countries will reach 211 million tons. Reuters analysts believe that this means that in addition to other competitors who have driven off the Chinese market, China’s domestic iron ore production with a 62% iron content also needs to decrease by about 200 million tons, which is equivalent to shutting down about 40 Chinese domestic % of iron ore production capacity.

For the appetite for the four major mines, Shenyin Wanguo [-1.47%] analysts said that if the output of the four major mines continues to increase, this year's third quarter may reach peak supply during the year. Supply growth is faster than demand growth. The iron ore market is in a structure where supply exceeds demand. The market may continue to be weak.

For the mining giant, "cleaning up" the weaker competitors seems to be only the first step. Industry sources said that the next possible situation will be a new round of fierce competition among giants.