Judging by some executives' public comments, you'd think BHP Billiton and Rio Tinto were the iron ore producers most aggressively expanding output among the Big Four.
The companies are recklessly flooding the market to drive competitors out of business, Andrew Forrest, founder and chairman of fourth-ranked Fortescue Metals Group, has argued repeatedly. They're engaging in a "very clever game" driven by "boardrooms in London to drive down the iron ore price," he told the Australian Broadcasting Corp. last year.
By failing to rein in production the firms were causing a self-inflicted loss of revenue, Lourenco Goncalves, chief executive officer of the biggest U.S. iron ore producer, Cliffs Natural Resources, told Bloomberg News last November.
It now looks as if those companies have been among the most restrained.
BHP Billiton cut its forecast for fiscal 2016 iron ore output twice in the past nine months, and still narrowly missed its last estimate in a production report Wednesday. While levels were affected by the disaster at its Samarco operations in Brazil last November, even at the bigger unit in Australia's Pilbara the company is forecasting 265 million metric tons to 275 million tons in the 2017 fiscal year, little changed on the 270 million tons it predicted for this year back in January (actual 2016 production came in at 257 million tons, another narrow miss.)
It's a similar picture at Rio Tinto. Production from the Pilbara will be 330 million tons in the year through December, subject to weather conditions, the company said Tuesday. Next year it will be 330 million tons to 340 million tons, owing to a delay in starting up a driverless rail line to carry the ore to port. Production increases have all but come to a halt.
Capital spending plans further underline the slowdown. Rio, which replaced its former iron ore head Sam Walsh with copper boss Jean-Sebastian Jacques as CEO earlier this year, is committing most of its scheduled outlays to copper and bauxite. BHP is focused on petroleum and, again, copper.
The players that are going to add most to the iron ore market over the next few years will be Vale, set to start its 90 million tons-a-year S11D project in Brazil later this year, and Roy Hill, the closely held business owned by billionaire Gina Rinehart that's currently working up to a 55 million tons-a-year 2019 production target.
That backdrop helps explain why Rio and BHP are trimming some of their forecasts. Driven by surprisingly voracious Chinese steel demand, iron ore prices have been hovering in the range of $50 to $60 per ton since March.
There's no guarantee that's going to continue. If Beijing's latest construction boom ebbs and all that new supply finds its way onto the market without disruption, the big players in iron ore would do well to proceed with greater care.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To be fair to Fortescue, after years of expansion it's also pulling back. Output this year is forecast at 165 million metric tons, compared with 185 million tons in 2015.
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