It is reported that Australia iron ore industry is on an USD 85 billion expansion spree which could lead to overcapacity in another five to six years.
An analyst said however major miners like BHP Billiton and Rio Tinto will simply put the brakes on output to keep prices high.
The Bureau of Resources and Energy Economics forecasts that iron ore export capacity is expected to be boosted by about 75% to at least 815 million tonnes by December 2016 while exports will increase to 600 Mt from about 408Mt in 2010/11.
Major Australian miners are currently expanding existing mines and other companies such as China CITIC Pacific are planning new mines in Western Australia Pilbara region to meet this anticipated demand growth.
The rise in iron ore export capacity will come from an estimated USD 37 billion worth of projects with secured funding including expansions of mines operated by BHP Billiton, Rio Tinto and Fortescue Metals Group.
Mr Greg Burns Martin Place Securities head of research says at least USD 85 billion worth of iron ore mine expansions were planned Australia-wide which could effectively double current capacity of 465Mt to one billion tonnes by December 2016.
He said that “But I don't believe that's possible. It's hard to get money at the moment either equity or debt. So I just don't think all the projects that are planned will actually see light.”
Mr Burns said the expected gap between production capacity and demand in 2016/17 was not a concern because the big miners would pull back output to keep supply tight and prices high.
He said that 'I'm not terribly worried that we're going to have an overrun of capacity and even if we do, they'll just reduce the rate to match demand and won't let the price soften too much. He added that they'll speed it up or slow it down, depending on the market.”
He also said Australia's long list of potential iron ore projects indicated a large dose of posturing by the major miners, which appeared to be talking up their expansions to deter new market entrants. Some of these expansions by the big boys are really waving the flag, saying nick off' to other people.”
(Sourced from www.skynews.com.au)
