Daily iron ore price update (BHP in full reverse)

More sideways action! And the big news of the day? BHP in full reverse gear:

BHP Billiton has slashed more than 150 million tonnes of annual iron ore production from its Pilbara iron ore expansion plans in response to the recent price shock in the key steel-making raw material. The cuts are potentially worth $US18 billion ($17.36bn) at current spot prices.

In closed presentations to investors in Sydney yesterday, BHP confirmed a near-term Pilbara production target of 220 million tonnes of iron ore and hinted that reducing costs and easing bottlenecks could improve that target “significantly”.

Apart from alluding to a potential of 300 million tonnes that could be achieved by modest expenditure on its rail system, BHP dropped all references — in slides lodged with the stock exchange — to the 450 million tonne aspirational target it set 14 months ago.

Don’t say I didn’t tells ya!

David Llewellyn-Smith
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Comments

    • I doubt it, they are cutting expansion not cutting production.

      Spot prices haven’t moved more than a few cents for some days. I suspect they have adopted a wait and see approach. The ore is still there and it’s still in demand – it’s a sensible approach.

      • how about “mining expansion” jobs (construction and engineering)?

        there are many more these jobs out there than “mining production” jobs

        • It’s still not a workforce cut rav, it’s a loss of future jobs, or perhaps a postponement.

          • It does mean though that house building had better pick up before long, otherwise significant numbers of constuction workers currently building mining plant and transporting/shiploading facilities may be joing the dole queue in the not-too-distant future.

            Agree though that it doesn’t necessarily imply more bulk job losses in the here and now.

          • I think it does mean there will be current contract jobs which will either be not extended…or not run for the full term of the contract. As I understand it a considerable number of people (BHPBIO and various contractors) are still currently working on completion of components of RGP5 and RGP6 expansions. Any change to the timelines for reaching full capacity under those expansion programs must therefore impact on those engaged in delivering those expansions.

          • Agree Lef-tee. And it is already having an effect in the West. Construction work is busy out for 6 months and more but the ending horizon for construction build out is clearly in view.

            The Engineering and Design spaces are sufferring big time however.

          • @ peter

            Really? only future jobs?

            There are many workers (construction and engineering) who currently work on mining related expansions. If mining companies stop expanding most of them will lose jobs once they complete current projects.

            There are only 250k mining jobs but many more “mining expansion” related construction and engineering jobs. In addition, there are many jobs that support these expansion projects (construction material, machinery, wholesale, hospitality …)

          • What are you talking about? Of course it’s a workforce cut! There’d be at least a hundred people working on pre-feasibility studies, site selection, etc. for these potential projects.

            Just because it’s not currently under construction does not mean noone is working on it. Most of these projects have 2 years or so of run up, then 2 years of engineering before construction even ramps up.

          • Not to mention all the vendors, eg. Blue Scope Steel, who would have been banking on these expansions to help them keep revenue up.

            Looks like LNG & CSG are the only horses left in this race as far as large-scale capital works go.

          • Reminds me of the great Mark Twain quote for some reason: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

          • dumb_non_economist

            I don’t know where the RBA or anyone else got the idea that mining construction jobs are transferable to housing construction. The electrical trades are one of the few areas and even then it’s different work. Metal trades, HD mechanics, HD Fitters, HD vehicle service people, truck drivers etc, where do they fit in.

            Anyone thinking that a housing pickup will soak up the lost mining jobs is deluded.

          • I allready know of a significant number of jobs being lost in the design and consulting offices in Perth.

            These companies have to gear up with people ahead of the projects to prove they have the capacity to win some of these anticipated big jobs. Now with the lowered expectation of new work the front end is being cut. This will then spread to the construction, suppliers and other services.

        • Marcus Randolph was quoted in the Australian today as saying cntractors can forget about the days of margin expansion for their services. Might mean job cuts at contractors such as NRW etc.

      • Forrest GumpMEMBER

        What BHP are telling us is the planned Outer Harbour Expansion at Finucane Island that was previously put on hold, is now off the table altogether. This was the planned 120 MT additional that was to be shipped. But the cost in doing this expansion cannot be financially viable at the current and expected future spot price. So BHP will opt for rationalisation of the rail system to get more tonnage to Port and with their 2 new ship loaders coming on line over the coming 12 months, they will be within comfort of maintaining their ~200 MT PA.

        What this means: The outer harbor was a huge project that was already employing thousands in the engineering phase. This has now officially ended with thousands of design,engineering and site support staff out of a job. I know coz I am in the thick of it. Further to this, what it means is the construction of this project is never going to happen. Again, this will have a huge impact on the jobs market.

        Many projects are now coming to their completion in WA’s Pilbara. FMG, Roy Hill, Rio and BHP’s Inner Harbor are all coming to a close. Those projects employ around 20-40K people across the board. Anyone thinking this will not have an impact has rock in their head.

    • Of course. Demand goes on forever.

      Then there’s around 400Mt of new production starting in Africa over the next couple of years. That won’t have any impact, either.

      • I don’t think the likes of Africa and Mongolia are that much of a threat until they can operate with competitive margins to Australia though…

          • Wouldn’t be the first time people made poor investing decisions just to get a foot in the door in a cyclical bull market.

          • The single biggest investor is the Chinese government. Their stated goal is to break the Rio/BHP duopoly in iron ore. They have the funds and they have the will.

  1. Cripes, I was just reading 5 minutes ago about BHP declaring itself on track to increase it’s coking coal output from over this side of miningboomland by 50% in the next two years.

    I wasn’t overly convinced when I read that 5 minutes ago, I’m even less convinced now.

    • That is the plan. There is much hoopla here over what is in effect a revision of mooted expansion plans in light of changed global circumstances. Prudent action on the part of BHP. ‘Capital light’ to bring production to 300mta, all good.

  2. Diogenes the CynicMEMBER

    How does that make the mining boom for “investment” look Treasurer? (and your lackeys in the Treasury/RBA)…

    I have heard of significant cuts to engineering and consultants in the last two months so those pre-jobs have already gone.