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09-09-2014, 10:42 PM
Iron ore, coal face chronic price pain, former BHP exec warns
THE AUSTRALIAN SEPTEMBER 10, 2014 12:00AM
Barry FitzGerald
Resources Editor
Melbourne
Sarah-Jane Tasker
Reporter
Sydney
FORMER senior BHP Billiton executive Alberto Calderon has warned Australia faces a permanent fall in prices for its major exports of iron ore and coal as growth in the Chinese economy becomes increasingly driven by private consumption.
And the Yale-trained professor of economics — one of the contenders for the top job at BHP that went to Andrew Mackenzie — said it would be wrong to pin economic hopes on the burgeoning LNG export industry because the gas was expensive, and there was a new supply challenge coming from Russia and the US.
Speaking last night at a Bloomberg forum in Melbourne, Mr Calderon painted a bleak outlook for Australia’s biggest export earners of iron ore, metallurgical coal and thermal coal, with the first two steelmaking raw materials. “On one side, we will see almost no growth in Chinese demand for iron ore, even if there is some growth in steel,’’ Mr Calderon said.
“On the other side, we are seeing a wall of iron ore supply being dropped in to the market by the large mining companies. It is not difficult to see why iron ore prices have collapsed and why they will go even lower.’’ Mr Calderon was previously part of BHP’s inner circle. Before leaving last year he was in charge of the aluminium and nickel division, as well as corporate development. He also continued on in a special advisory role to Mr Mackenzie for some time. His comments come as iron ore has collapsed from last year’s average of $US135 a tonne to a five-year low of less than $US84 a tonne.
Earlier in Sydney, one of Rio Tinto’s top executives warned of a continued challenging environment for thermal coal — the nation’s third biggest export — which is likely to expose a new source of pain for the resources sector.
Australia’s top three exports, valued at more than $100 billion annually, are all under severe price pressure. At its peak, thermal coal was priced at above $US130 a tonne, but it has fallen to around $US66 a tonne for coal shipped through Newcastle. For coking coal, also used in steelmaking, the price has fallen from more than $US300 a tonne to $US110.
Australia’s miners of the bulk commodities have been slashing costs to protect their margins but the price of thermal coal has hit a pricing point where it is expected that around 80 per cent of production is under water. “Coal producers here and around the world have taken a hatchet to their costs to survive and they’ll have to continue to do that over the foreseeable future,” Rio’s global energy boss, Harry Kenyon-Slaney said.
Mr Calderon said that with some certainty it could be that iron ore prices will revert to marginal costs, even overshooting in to the low $US70s for “some years’’.
Many iron ore producers would experience the same sort of pain that had for years characterised the aluminium and nickel industries, both of which China had worked at creating oversupply.
Mr Calderon noted that while 90 per cent of China’s energy growth used to be coal-based, it was now 80 per cent-based on nuclear, gas and renewables. “This is very good news for the environment and for climate change, not very good (news) for thermal coal,’’ he said.
Iron ore still overshadows metallurgical coal and steaming coal exports, coming in at about $US70 bn ($75bn) annually.
Mr Calderon said oversupply was the key factor in the price collapse. He stressed he was not talking about a contraction of the Chinese economy, rather a change in the mix of commodities required as China moves from its industrialisation phase to a consumer-driven economy. “The composition of growth will change significantly. Investment will not be the major driver of growth, it will be private consumption.’’ As China moves up the GDP per capita curve, there will be more demand for “middle income’’ commodities like copper, meat and corn at the expense of the “lower income’’ commodities of iron ore and coal.
“The challenge for Australia is how to move to the middle income commodities … Now is the time to dismantle the roadblocks to (again) allow productivity to increase and private investment to grow.’’
THE AUSTRALIAN SEPTEMBER 10, 2014 12:00AM
Barry FitzGerald
Resources Editor
Melbourne
Sarah-Jane Tasker
Reporter
Sydney
FORMER senior BHP Billiton executive Alberto Calderon has warned Australia faces a permanent fall in prices for its major exports of iron ore and coal as growth in the Chinese economy becomes increasingly driven by private consumption.
And the Yale-trained professor of economics — one of the contenders for the top job at BHP that went to Andrew Mackenzie — said it would be wrong to pin economic hopes on the burgeoning LNG export industry because the gas was expensive, and there was a new supply challenge coming from Russia and the US.
Speaking last night at a Bloomberg forum in Melbourne, Mr Calderon painted a bleak outlook for Australia’s biggest export earners of iron ore, metallurgical coal and thermal coal, with the first two steelmaking raw materials. “On one side, we will see almost no growth in Chinese demand for iron ore, even if there is some growth in steel,’’ Mr Calderon said.
“On the other side, we are seeing a wall of iron ore supply being dropped in to the market by the large mining companies. It is not difficult to see why iron ore prices have collapsed and why they will go even lower.’’ Mr Calderon was previously part of BHP’s inner circle. Before leaving last year he was in charge of the aluminium and nickel division, as well as corporate development. He also continued on in a special advisory role to Mr Mackenzie for some time. His comments come as iron ore has collapsed from last year’s average of $US135 a tonne to a five-year low of less than $US84 a tonne.
Earlier in Sydney, one of Rio Tinto’s top executives warned of a continued challenging environment for thermal coal — the nation’s third biggest export — which is likely to expose a new source of pain for the resources sector.
Australia’s top three exports, valued at more than $100 billion annually, are all under severe price pressure. At its peak, thermal coal was priced at above $US130 a tonne, but it has fallen to around $US66 a tonne for coal shipped through Newcastle. For coking coal, also used in steelmaking, the price has fallen from more than $US300 a tonne to $US110.
Australia’s miners of the bulk commodities have been slashing costs to protect their margins but the price of thermal coal has hit a pricing point where it is expected that around 80 per cent of production is under water. “Coal producers here and around the world have taken a hatchet to their costs to survive and they’ll have to continue to do that over the foreseeable future,” Rio’s global energy boss, Harry Kenyon-Slaney said.
Mr Calderon said that with some certainty it could be that iron ore prices will revert to marginal costs, even overshooting in to the low $US70s for “some years’’.
Many iron ore producers would experience the same sort of pain that had for years characterised the aluminium and nickel industries, both of which China had worked at creating oversupply.
Mr Calderon noted that while 90 per cent of China’s energy growth used to be coal-based, it was now 80 per cent-based on nuclear, gas and renewables. “This is very good news for the environment and for climate change, not very good (news) for thermal coal,’’ he said.
Iron ore still overshadows metallurgical coal and steaming coal exports, coming in at about $US70 bn ($75bn) annually.
Mr Calderon said oversupply was the key factor in the price collapse. He stressed he was not talking about a contraction of the Chinese economy, rather a change in the mix of commodities required as China moves from its industrialisation phase to a consumer-driven economy. “The composition of growth will change significantly. Investment will not be the major driver of growth, it will be private consumption.’’ As China moves up the GDP per capita curve, there will be more demand for “middle income’’ commodities like copper, meat and corn at the expense of the “lower income’’ commodities of iron ore and coal.
“The challenge for Australia is how to move to the middle income commodities … Now is the time to dismantle the roadblocks to (again) allow productivity to increase and private investment to grow.’’