World's Largest Miners Set To Ramp Up Expansions Despite Oversupply Concerns

Michael Teague |

After 18 months and $60 billion of writedowns, some of the world’s biggest mining companies like Rio Tinto Plc (RIO) and BHP Billiton (BHP) continue to expand operations while coming under pressure to cut expenses, as shareholders remain skeptical about the sustainability of Chinese economic growth.

It is not only shareholders who are concerned. On Wednesday, Glencore Xstrata Plc ($GLNCY) CEO Ivan Glasenberg also called for more stringent fiscal practices from the industry, even as Bloomberg reported that the top 20 mining companies are expected to spend $244 billion on expansion by 2015, just shy of the $250 billion they have spent over the previous three years.

The planned expansions come even as numerous reports suggest that the metals for which demand at the moment is particularly high, such as iron ore and copper, are likely to run into oversupply next year. Indeed, when world mining leader BHP Billiton released its half-year production report in July, the company reported its 13th consecutive record month of iron ore production, with significant increases in copper production as well.

China is the world’s largest consumer of both metals, and its seemingly miraculous growth over the past years has on several occasions seen iron ore supply trailing demand. The mining industry has scrambled to adjust to this situation; with BHP and others shedding assets to streamline focus on iron ore and to a lesser extent copper. And while industry insiders have been trying to convince investors that Chinese growth will continue to provide adequate demand, the signs are pointing to the fact that all of the projects initiated in recent years are starting to inflate stockpiles.

While companies have taken measures to better control capital spending, they are still bullish on China, and many are moving ahead with expansions and production increases. Vale SA (VALE) , another industry giant, has cited China’s record iron ore imports for the month of July, as well as the Chinese Communist Party’s recent approvals of a raft of new construction projects, particularly for urban rail systems.

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Companies

Symbol Name Price Change % Volume
RIO Rio Tinto Plc 41.15 -0.97 -2.30 3,853,470
VALE VALE S.A. American Depositary Shares Each Represen 8.78 -0.16 -1.79 26,109,176
BHP BHP Billiton Limited 38.48 -0.42 -1.08 2,059,742
PEPT Peptide Technologies Inc n/a n/a n/a 0

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