Australia’s iron ore industry faces a tougher operating environment as rising costs, expensive diesel, and tougher negotiations with Chinese buyers pressure the country’s biggest miners.
BHP is preparing to cut up to 300 operational roles from its 14,000-strong Pilbara workforce as it seeks productivity improvements across its Western Australian iron ore operations.
The move follows restructuring at Rio Tinto and comes as Fortescue also deals with weaker Chinese sales.
Iron ore prices remain above US$90 a tonne, but higher operating costs are eating into margins.
Diesel becomes major cost pressure
Elevated global oil prices have become an increasingly significant issue for Australian miners because enormous haul trucks and mining fleets consume substantial amounts of diesel.
Rio Tinto estimates higher fuel prices could add more than A$530 million to costs across its Pilbara operations and increase unit costs by around US$1.10 a tonne.
At the same time, China’s increasingly centralised iron ore purchasing system is strengthening Beijing’s negotiating power.
China Mineral Resources Group has placed pressure on selected products supplied by BHP, Rio Tinto and Fortescue during pricing negotiations.
Fortescue has already reported a significant decline in sales as negotiations affect demand for some products.
The developments demonstrate how Australia’s largest export industry is being squeezed from both sides.
Chinese steelmakers are trying to reduce the price they pay for Australian ore while higher wages, energy and equipment costs are making that ore increasingly expensive to produce.
For the Pilbara majors, productivity is becoming critical even while iron ore prices remain comparatively strong.
