China Slowdown Forces Aussie Miners to Miss Production, Growth Targets
Ahead of their scheduled financial reports this week, giant miners are expected to flag serious concerns over softening demands for commodities, which analysts said will be compounded by tumbling global market prices for Australia's chief export products.
As of the September quarter this year, thermal coal and iron ore prices have declined considerably, with the latter reaching levels that were 20 per cent lower to the strongest price seen in 2012, according to Reuters.
The alarming trend, analyst said, has been the industry norm since the beginning of the current year and experts could only point to one glaring reason - the slow down in China.
Resource firms' normal gauge for healthy financial standing - high out put capacity - cannot be relied on this time around even as the market expects BHP Billiton, Rio Tinto and Fortescue Metals Group (FMG) to issue production numbers that were within their guidelines this week.
Investors, according to FW Holst analyst Rob Craigie, were more inclined to obtain clear briefings on company strategies amidst the impacts of China's deliberate efforts to reduce its intake of metals and minerals that drive the Asian economic powerhouse's industrialisation.
"Given the volatility over the past quarter, investors will be looking for the companies' comments on current market conditions, particularly for steel making raw materials," Mr Craigie told Reuters.
Snapshots of these tactics, however, have been provided in recent months as miners reacted to the prevailing market environment by curbing production targets, which in turn led to the postponement or cancellation of previously announced expansion plans.
In fact, even ongoing projects have been put aside, analysts said, as mining companies scrambled to cushion the effects of China's diminishing appetite for raw materials that were being used for the country very important steel-making industry and were sourced from Australia.
The market, Pengana Capital portfolio manager Ric Ronge said, is itching to know how the resource industry will handle the expected revenue slump in light of the dominant attitude in China.
"The biggest challenge is managing costs. It's not a question around volumes," Mr Ronge told Reuters.
The general consensus is to slash production costs and to exhaust existing inventories for near-term shipments but to maintain output levels that are within guidance at the same time just so to answer demands in the event of future spikes, analysts said.
In Rio Tinto's case, the company is expected to sustain its production target for calendar year 2012 while both BHP and FMG are seen to scale back on outputs, with the latter likely to implement steeper production cuts on iron ores, Reuters said.