TREND TO REVERSE Australian mine output still rising in Q3 against the trend Output from Australian mining operations continued to rise overall during the third quarter but could be facing a downturn as the lower prices and demand really begin to bite.
Author: James Regan Posted: Wednesday , 10 Dec 2008
SYDNEY (Reuters) -
Australia churned out increasing amounts of iron ore, nickel, aluminium and many other metals in the third quarter despite waning global demand, although forecasts due next week are likely to show the trend reversing.
Iron ore miners facing increasingly hobbled steel makers still pushed out 5.5 percent more ore than the previous quarter, while nickel, used in stainless steel, was up 6 percent, according to Australian Bureau of Agricultural and Resource Economics (ABARE) figures released on Wednesday.
Analysts have been waiting for signs Australian miners were curtailing production runs to address the dramatic drop in commodity prices since July, but the response so far has been minimal, they said.
But given mine closures and less demand from customers, particularly in China and the rest of Asia, ABARE 2009 forecasts due next week are likely to show slowing output.
Saddled with nearly $40 billion in debt, Rio Tinto announced earlier on Wednesday it was cutting 14,000 jobs worldwide and reviewing its assets, which could lead to less production from one or more of its Australian mines.
"Drastic times call for drastic measures," Tim Schroeders, portfolio manager at Pengana Capital in Melbourne said.
"They've definitely gone into survival mode, which is appropriate given the market circumstances."
All up, two-thirds of all commodities recorded increases, ABARE said, sending the sector's export earnings to a record A$42.6 billion ($28 billion) in the quarter.
A much-weakened exchange rate against the U.S. dollar, the international currency for buying and selling commodities, is one reason miners continue act as if the boom never ended.
"When you look at a lot of the metals in Australian dollar terms, they are still holding up fairly well," said JP Morgan analyst Brendan James.
Others, such as zinc miner Oz Minerals, under pressure to mothball the giant Century zinc mine, cite costs associated with paying out workers and cancelling equipment contracts.
CUTS OFFSET
The few closures that have occurred across the outback in response to the drops in metals prices -- copper is down 54 percent, nickel 68 percent and zinc 55 percent this year -- were more than offset by higher output by other mines, ABARE said.
For example, while BHP Billiton produced less copper during the quarter, Xstrata produced more, noted ABARE's executive director, Paul Glyde.
ABARE forecasts on Monday are expected to project some declines in output in 2009, owing in part to further weakening in the Australian dollar, but still not a lot given the billions of dollars spent digging new mines during the boom times.
"Lower cost producers are going to be the ones that survive in this market," DJ Carmichael & Co analyst James Wilson said. "Others may drop off."
Paul Arndt, managing director of Perilya Ltd, a zinc miner, estimates 80 percent of the zinc industry "is underwater" right now, meaning "something's got to give."
Arndt said costs associated with closing mines was discouraging some mines from shutting.
But that could change if prices continue to spiral down.
Australia & New Zealand Bank commodities strategists don't expect any pick-up in China until after the Chinese New Year celebrations in late January, but even then predict only a "muted" recovery.
Australia's Dalrymple Bay coal terminal, the world's largest metallurgical coal export port, is expecting only 28 vessels to arrive in December, against average arrivals of 50-55 vessels per month, according to a report by Macquarie analyst Jim Lennon. Refined copper production was steady at 134,000 tonnes in the three months to Sept. 30 versus the previous quarter, while gold output rose 1 tonne to 55 tonnes. Aluminium ingot production rose 1.4 percent to 498,000 tonnes, according to ABARE.
Refined zinc, one of the metals hardest hit by low demand and mine curtailments, dropped 6.8 percent to 122,000 tonnes. ($1=A$1.52) (Reporting by James Regan; Editing by James Thornhill and Michael Urquhart)
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