Mr Clyde Russell of Reuters wrote that the job losses and cost cutting at Australia's major iron ore producers show they are taking to heart the adage to never let a good crisis go to waste as the cutbacks at top global miners BHP Billiton and Rio Tinto came despite a recent rebound in iron ore prices from 3 year lows.
Hopes for higher prices really rest on China and has recently announced measures aimed at stimulating infrastructure spending and industrial output. Nonetheless, it's important to note that the market isn't signalling a strong rebound in iron ore prices, rather a more gradual pick up. This is in line with expectations that the Chinese stimulus will be slower and softer this time around, rather than the massive and rapid boost after the 2008 global financial crisis.
Against this backdrop it makes perfect sense for BHP Billiton and Rio Tinto to switch emphasis from expanding output to curbing costs, even though both companies maintain belief in the long term strength of the outlook for iron ore.
BHPB will shed an undisclosed number of jobs in its iron ore business, adding to cuts that saw the company shelve a AUD 20 billion plan to expand its main export facility for the ore in Western Australia state. Rio said that it would step up cost cutting because of the uncertain short term outlook for China. An unspecified number of jobs will go, this time in front ine operations, adding to cuts in service and support roles that have resulted in savings of about AUD 500 million so far.
Both companies appear to be using the unexpected downturn in iron prices to focus on costs, which tend to be less important when prices are robust and profits easier to make. While this makes good business sense, a slightly more cynical benefit is that it allows the companies to send signals to both their workforce and the government.
Spot iron ore traded at USD 117 a tonne, up 35% from the low of USD 86 hit on September 5. But the key point is that the price is still well below the 2012 peak of USD 149.40 a tonne in March and the record high of USD 191.90 in February last year. The price is also below the USD 120 a tonne level often quoted as a floor price
Source - Thomson Reuters
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