‘Value not volume’ the new mantra as iron ore majors slow down
Tuesday August 23, 2016
Things have changed in the land of the red dust. In Australia, BHP Billiton and Rio Tinto have lifted their boots off the iron ore expansion pedals. In Brazil, Vale has plenty of gas left in the tank, but doesn’t want to boast about it. The game of ‘who drives the biggest SUV?’ suddenly seems in poor taste.
In Western Australia, the major producers’ expansion machines, well-oiled and efficient over the past five years or so, have developed some technical hiccups of late and need to spend more time with the mechanic. Rio’s driverless train network in the Pilbara, which has been slowly rolled out since 2014, has software issues with some computers refusing to talk to the others. BHP’s iron ore supply chain, meanwhile, has been slowed down while maintenance work is carried out, chief executive Andrew Mackenzie said in August, while announcing a record financial loss for FY2015-16.
Mackenzie said iron ore prices had been supported this year in large part due to a slower than expected ramp up of new low-cost supply from international producers. That comment no doubt elicited a wry smile from Cliffs Natural Resources chief executive Lourenco Goncalves, who has accused the Australian miners of destroying value by bringing on so much supply.
Mackenzie’s peer at Rio, Jean-Sebastien Jacques, in the job only since July, perhaps best summed up the ‘new normal’ for iron ore this month, when he said it was now about “value not volume.”
Whether this was an implicit criticism of previous strategies is up for debate (Goncalves believes it is and that the penny has finally dropped with BHP and Rio…). But the fact that Jacques effectively shelved the massive greenfield Simandou iron ore project in Guinea on almost his first day in the job may provide some clues. Rio’s form...
Mackenzie said iron ore prices had been supported this year in large part due to a slower than expected ramp up of new low-cost supply from international producers. That comment no doubt elicited a wry smile from Cliffs Natural Resources chief executive Lourenco Goncalves, who has accused the Australian miners of destroying value by bringing on so much supply.
Mackenzie’s peer at Rio, Jean-Sebastien Jacques, in the job only since July, perhaps best summed up the ‘new normal’ for iron ore this month, when he said it was now about “value not volume.”
Whether this was an implicit criticism of previous strategies is up for debate (Goncalves believes it is and that the penny has finally dropped with BHP and Rio…). But the fact that Jacques effectively shelved the massive greenfield Simandou iron ore project in Guinea on almost his first day in the job may provide some clues. Rio’s form...