Anglo American devoted a fifth of its $2.3bn capex in the first half to iron
ore development projects in Brazil and South Africa. Its project pipeline
for the steelmaking ore has expanded fivefold since 2007.
BHP Billiton, with capex in its year to June at more than 40 per cent of its
$30bn net operating cash flow, has set aside $8.4bn for iron ore projects
this year. Rio Tinto and Vale also invest hard in capacity.
China
This giddy spending might look out of tune with the global economic mood
music. China’s economy expanded at its slowest clip in more than two years
in the third quarter, albeit a still punchy 9.1 per cent.
But the Organisation for Economic Co-operation and Development has inked in
growth of 8.5 per cent for next year. That is 8.5 times the pace of some
developed economies.
Chinese equities, meanwhile, have fallen for four straight weeks, amid
concerns of a slowdown. And China’s purchasing managers’ index slipped to 49
last month, signalling contraction. Growth was bound to slow as the
country’s economic base expanded.
Early stages
Investors should keep things in perspective, however. China is still in the
early stages of urbanisation. It will approach the 50 per cent urbanised
level only in 2014, HSBC estimates, (the US got there in about 1920), and
could still be up to a decade away from when demand for iron ore peaks.
The beating that mining stocks have endured looks overdone. In sterling terms,
BHP Billiton and Vale’s share prices have both fallen by 20 per cent, Rio’s
and Anglo’s by a quarter. The miners can still land ore in China at between
55 and 65 per cent below the spot price. At such levels of profitability,
there would have to be a huge drop in demand before miners needed to
moderate their capex.
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