BHP Billiton's bullish iron ore production figures on Wednesday suggest the mining sector is shrugging off any worries about a slowdown in China and declining commodity prices, but analysts warn that the next tier of iron ore producers could get stung.
The world's biggest miner posted a 17 percent rise in output for to April to June quarter, bringing annual output to a record high of 187 million metric tons for the fiscal year. The news came a day after the world's second largest miner Rio Tinto said iron ore output rose a robust 7 percent in the same quarter from the year before.
The upbeat figures come even as China reported this week slower growth for the second straight quarter. The economy expanded 7.5 percent in the second quarter from the previous year, down from 7.7 percent pace logged in the first quarter.
Slowing economic growth in China is a concern for the mining industry, given that the country is the largest consumer of the steel making raw material. In June China's imports of iron ore fell 9.1 percent month on month to 62.30 million tons, Reuters reported, the lowest in four months and compounding worries about falling demand for iron ore.
According to analysts, while mining giants BHP and Rio are well equipped to counter headwinds in the market, the next tier of players in the mining sector, along with smaller producers, are less equipped to weather an industry slowdown.
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"If demand weakens, your costs are high, your margins are smaller and your efficiency is lower... what happens is you are the company that becomes unprofitable fast," said Ric Spooner, chief market analyst at Sydney-based CMC Markets Asia Pacific.
"I can easily see some of these smaller players moving into a loss situation and cutting production or closing mines," he added.
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