The Chinese government’s move to stimulate the domestic economy has been welcomed by Western Australia’s largest miners and investors, Hartleys resource analyst Andrew Muir told MINING DAILY.
“The market yesterday jumped quite nicely on the back of the Chinese government’s announcement,” Muir said.
“The Chinese government’s relief package was a fair bit bigger than a lot of analysts predicted, and most people saw it in a very positive light.”
According to Muir, the move will give the industry a softer landing, as the industry starts to show the effects of decreasing demand.
“I don’t think the move will kick-start China’s economy again, but what it will probably give the Chinese economy a softer landing than was otherwise predicted,” Muir said.
“This means that demand for Rio Tinto and Fortescue Metals Group (FMG) products will not plunge, as may have been the case; demand may still fall slightly, but it will be a more gradual reduction.”
Recently Rio Tinto announced it will cut iron ore production at its Pilbara operations by about 10% due to reduced demand from customers.
Rio revised its estimate of iron ore shipments from the Pilbara region of Western Australia to between 170 million tonnes and 175 million tonnes in 2008.
“Most of Rio Tinto’s production drop pertains to the shorter term, but it amounts to a 10% drop on production for the year,” Muir said.
FMG has also brought forward a planned shut down of the port and mine processing plant for about 10 days, commencing November 17.
The shut down is said to be part of the company’s optimisation program to increase infrastructure capacity to 55 million tonnes per annum and also to refine the company’s product offering to best meet Chinese demand for “value in use” material.
“FMG’s decision to shut its port for ten days for a scheduled upgrade means that demand is not as strong at the moment,” Muir said.
“Reading between the lines of FMG’s announcement that it would bring forward this shutdown, FMG basically needs to increase the quality of their ore,” Muir said.
“With the reduction in demand, the lower quality ores will become less desirable, and steel mills can afford to go after better quality ore.”
While the strain of decreasing demand continues to affect WA’s iron giants, red tape is still the biggest headache for the industry, according to Muir.
“Miners and explorers are looking forward to a streamlining of the permitting process,” Muir said.
“There has been a lot of red and green tape on the government’s side in terms of giving approvals for exploration and mining.
“There has been a fair degree of disappointment with the previous WA government after they said that they would streamline these processes, but did not deliver.”