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Brazil and Australia to drive industry growth

MAJOR MINERS EXPANDING 
Brazil's iron-ore sector is expected to continue to outperform in terms of production growth over the coming years

MAJOR MINERS EXPANDING Brazil's iron-ore sector is expected to continue to outperform in terms of production growth over the coming years

2nd December 2016

  

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Global iron-ore production growth is set to become stagnant, owing to contracting output by high-cost iron-ore producers in China, while output growth in Australia, Brazil and India will remain positive, enabled by a pipeline of expansion projects by major miners, notes market researcher BMI Research.

The company notes that global iron-ore production will grow minimally from 3 133-million tons in 2016 to 3 256-million tons by 2020 . This represents average annual growth of 0 .1% during 2016 to 2020, which is significantly lower than average growth of 4.8% during 2011 to 2015.

Additionally, supply growth will primarily be driven by Australia and Brazil on the back of expanding output by major miners such as British-Australian multinational mining corporation Rio Tinto, Anglo-Australian multinational mining, metals and petroleum company BHP Billiton, Brazilian multinational corporation Vale and Australian iron-ore company Fortescue Metals Group.

However, BMI points out, miners in China, which operate at the higher end of the iron-ore cost curve, will be forced to cut output, owing to the continued iron-ore price weakness.

Australian iron-ore production will slow with the exit of junior high-cost miners, before, despite subdued iron-ore prices, major players ramp up production. Major miners will increasingly focus on cost-cutting , while a weaker Australian dollar will further aid a pipeline of expansion projects.

Declining production costs will keep major miners’ strategy of increasing output to reap economies of scale economically sustainable, says BMI. For example, BHP Billiton, one of Australia’s main iron-ore producers, reported cash costs for the first half of 2016 of $15/t, down from $18.5/t in 2015.

Further, BHP Billiton and other major firms such as Rio Tinto, reported cash costs of $14.3/t at the firm’s Pilbara operations, in Western Australia, and Fortescue will continue to invest in existing operations.

Also in the Pilbara, Australian mineral exploration company Hancock Prospecting’s Roy Hill iron-ore mining project is expected to produce 55-million tons a year over the coming years.

Meanwhile, Brazil’s iron-ore sector is expected to continue to outperform in terms of production growth over the coming years, supported by low operating costs and vast reserves, says BMI.

Production growth will be driven largely by Brazilian metals and mining company Vale, which will remain the largest iron-ore producer by volume globally to 2020.

While the firm reduced 2016 production guidance to between 340-million tons and 350-million tons from between 366-million tons and 386-million tons, Vale will remain ahead of its peers in tonnage, says BMI, adding that the firm will prioritise cost cutting and divestment to maintain iron-ore production levels.

Vale reportedly spoke with Asian companies about selling a minority stake in Brazilian iron-ore assets for an estimated $7-billion, or entering into a streaming deal.

BMI highlights that other foreign and domestic firms will continue advancing Brazilian iron- ore projects. Johannesburg- and London-based multinational mining company Anglo American’s $8.8-billion Minas Rio project, in the south-eastern region of Brazil, is scheduled to produce 26.5-million tons a year once it reaches full commercial production by the end of 2016 .

However, Minas Rio will remain at high risk of sale or closure following Anglo’s restructuring plan. At the end of last year, Anglo announced that it would focus on diamonds, copper and platinum as a result of better long-term potential.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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