Australia’s biggest iron ore producers are investing up to $10 billion (A$12.5 billion) in their mines to deliver a steady stream of goods to China as demand from their biggest customers shows little sign of slowing.
Led by Rio Tinto, Australia’s three largest exporters plan to add about 170 million tons of new capacity to replace mines that have been exhausted, and are looking at investments in infrastructure and equipment that would boost export capacity to long-term target levels. Deutsche Bank estimates that production from the three major miners will grow by 9% to 843 million tons in 2022.
Predictions of a slowdown in China’s steel industry have proved wrong, with BHP Billiton saying that production has not peaked and may not do so until 2025, while steelmaking feedstock will continue to perform strongly over the next 12 months.
Iron ore prices are currently near four-month highs.
Rio Tinto chief executive Jean-Sebastien Jacques is scheduled to commission the company’s $338 million Silvergrass mine on Wednesday, the first of a new round of old and new mine replacements in Western Australia’s Pilbara region.
According to government forecasts, Australia will account for about 56 percent of the global iron ore export market by 2019, compared with 54 percent last year.
As the world’s second-largest iron ore exporter after Brazil’s Vale (Vale), Rio Tinto reported earlier this month that it had approved spending $100 million to replace depleted mines and would consider approving another $100 million in spending over the next three years.
Rio Tinto is also looking at $4.4 billion worth of potential development and maintenance spending, the paper showed.
BHP Billiton will seek approval next year to spend about $3.2 billion to develop the Pilbara’s SouthFlank mine to replace 80 million tons of annual production. Deutsche Bank predicted in a July report that the company would also invest $300 million to increase its annual capacity in Australia to 290 million tons.
Despite the wave of new investment, the top miners’ new spending still amounts to only a fraction of the money invested at the height of China’s demand boom.
Rio Tinto invested A$28 billion to expand mines and infrastructure in the Pilbara between 2009-2016, according to a June Rio Tinto report to the Australian government’s Productivity Commission.
This month BHP Billiton announced a jump in profits, with Chief Executive Andrew Mackenzie saying they felt more optimistic about China’s efforts to push through economic reforms, which has bolstered demand.
Iron ore prices have been rising since mid-June as China increased imports and iron ore supplies from major producers grew at a slower than expected rate.
FortescueMetalsGroup CEO NevPower said last week, “We’re investing in future production, getting replacement mines in place ahead of time when we need them and maintaining a 20-year production inventory.” The company expects to spend up to $1.5 billion on replacing the soon-to-be-discontinued Firetail operation.
Chris Salisbury, chief executive of Rio Tinto’s iron ore business, said the producer could add about 100 million tonnes of production to the seaborne market between 2017 and 2018, focusing mainly on next year. According to statements he made this month, steel demand in China is proving stronger than steel mills and traders had expected due to a rebound in machinery sales and growth in the auto sector.