October 16, 2012 / 2:55 PM / 5 years ago

With boom over, miners must cut costs - Australia minister

SINGAPORE (Reuters) - With the commodity price boom over, miners have to slash costs to survive a tougher business environment after years of heady growth, Australia’s resources minister said on Tuesday.

Martin Ferguson, Australia's minister for Resources, Energy and Tourism, poses for a photo after an interview at the Australian High Commission in Singapore October 16, 2012. REUTERS/Tim Chong

A slowdown in top market China has curbed demand for resources from Australia, including its top two exports iron ore and coal, prompting the government to cut its mining export revenue forecast in the current fiscal year.

That has forced miners to scale back on expansion plans and cut costs, with top global miner BHP Billiton (BHP.AX) (BLT.L) shedding jobs in its most profitable iron ore business and rival Rio Tinto (RIO.AX) (RIO.L) also deepening a cost-cutting programme across its back office.

“Everyone’s back to square one. We can deliver outcomes but you’ve got to reduce your cost and manage your businesses,” Australian Resources and Energy Minister Martin Ferguson told Reuters in an interview.

“Commodity price boom is over and no one can deny it. We’ve now moved to the next phase of the cycle which is on absolute focus on capacity and cost structures.”

Australia slashed its export revenue from iron ore in the year to June 2013 by 21 percent to A$53.2 billion (33.79 billion pounds) from a previous estimate amid signs of waning appetite from China, raising concern a resources boom that has helped shield Australia from recession for 21 years is ending.

Whether there will be further cuts in the revenue forecast will depend on where iron ore prices will head to, Ferguson said.


Iron ore .IO62-CNI=SI, one of the hardest hit commodities this year by China’s slowdown, slid to three-year lows below $87 a tonne in September. Prices have since recovered to above $100 but have struggled to go higher amid uncertainty on the outlook for China’s steel demand.

Martin Ferguson, Australia's minister for Resources, Energy and Tourism, poses for a photo after an interview at the Australian High Commission in Singapore October 16, 2012. REUTERS/Tim Chong

Chinese demand for raw material will stay firm as long as its economy continues to grow at a pace of around 7.5-8 percent.

“China’s where we thought it would be at this point in the cycle,” the minister said.

Despite a volatile market caused by China’s uncertain economic outlook, Australian miners are either sticking to production plans or looking at lifting output, in the hope that Chinese demand will bounce back.

Rio Tinto kept its 2012 production guidance at 250 million tonnes, saying its operations were performing strongly, while fourth-ranked Fortescue Metals Group (FMG.AX) plans to boost annual output by around 20 million tonnes.

Ferguson declared in August that the Australian resources boom had ended, but rowed back to say that though commodity prices had peaked, investments in multi-billion dollar projects would continue, especially in the energy sector.

“We’re still pretty well positioned as a country, but it will not be easy as it was... those record commodity prices, they were never going to be sustained,” he said on Tuesday.

While iron ore and coal projects in Australia are either being scaled back or mothballed, Ferguson said there has been no investment pullback in the liquefied natural gas industry.

“There’s potentially a second wave of LNG investment in Australia taking us well through 2020 in terms of construction and additional capacity,” he said.

Australia has more than $170 billion worth of LNG export projects under construction, and the country’s gas developers have planned to add more than 80 million tonnes per annum of LNG production before the end of the decade, an increase that would make Australia the world’s top LNG exporter, surpassing Qatar.

Editing by James Jukwey

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