Drops in iron ore output by majors help prop up price

Wed Apr 18, 2012 11:58pm EDT
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By James Regan

SYDNEY (Reuters) - Global miners BHP Billiton (BHP.AX: Quote), Vale (VALE5.SA: Quote) and Rio Tinto (RIO.AX: Quote) all posted sharp drops in quarterly iron ore production due to bad weather, a factor that has helped support iron ore prices at relatively high levels despite signs of a softening market.

The falls in output come as competition heats up in global bulk commodities markets due to demand from China for imported industrial raw materials finally showing signs of waning after years of double-digit growth.

At $149.20 a metric tonne, iron ore .IO62-CNI=SI prices are 22 percent below last year's highs.

BHP (BLT.L: Quote), Vale and Rio Tinto (RIO.L: Quote) -- together controlling 70 percent of the world's seaborne iron ore market -- are counting on their super-sized operations to provide economies of scale and an edge over small competitors when demand softens. The more each miner can dig up the lower the costs and greater the ability to ride out a downturn.

Smaller miners operating in Australia, including Fortescue Metals Group (FMG.AX: Quote) and Atlas Iron (AGO.AX: Quote), are also expected to unveil weather-related disruptions to production runs in the last quarter. BC Iron (BCI.AX: Quote), however, said it was able to maintain production without any major disruptions to its operations over the quarter.

"We have had an underweight position in the resources sector for several months now on our expectations for a slower rate of global growth in 2012 than in 2011 and our skepticism over the current level of commodity prices," said Ben Lyons, an analyst at ATI Asset Management, which manages A$500 million.

BHP said on Wednesday its iron ore output fell 8 percent, while data from Vale showed production down 15 percent. Rio Tinto reported a 10 percent fall on Tuesday.

Iron ore miners have been huge beneficiaries of China's rapid growth and urbanization in recent years. Last month BHP said it saw signs growth in iron ore demand in China was "flattening", triggering falls in global equity markets and commodity linked currencies such as the Australian dollar.   Continued...