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PrintRecord iron ore output from BHP Billiton (BHP.AX) and other mining giants appears to defy logic, with demand for the steel-making raw material cooling in top customer China and a price-eroding supply glut looming.
But the sector's heavy guns are digging more for less to tighten their stranglehold on the world's second-biggest commodity market, as competitors struggle.
In mining parlance, this is known as a "rebalancing" strategy, designed to improve the operating margins of the majors to such an extent that smaller competitors or new projects may be all but squeezed out.
"The majors want to maximise those economies of scale," said MineLife sector analyst Gavin Wendt. "As long as they keep margins well ahead of a declining iron ore price, they are winning."
BHP Billiton (BHP.AX), Rio Tinto (RIO.AX) and Fortescue Metals Group (FMG.AX), with their iron ore operations in Australia, and Brazil's Vale (VALE5.SA) are leading the charge.
Seaborne-traded iron ore prices, which have lost 10 percent so far this year, are forecast to hit their lowest in four years by the end of 2013 as these big miners dig deeper and faster.
At the same time, forecasters are warning slowing industrial activity in China will result in weaker overall demand for ore.
But Rio Tinto and BHP are among the most efficient iron ore producers in the world. At current prices of around $130 a tonne, each enjoys a margin of around $80 per tonne.
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