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Are Australia’s Iron Ore Ports Expanding for Nothing?

Matthew Taylor|Reporter, CNBC Australia
Sunday, 5 Aug 2012 | 8:42 PM ET

Australia’s big iron-ore ports are currently ramping up expansion plans as the country continues to face surging demand for its natural resources.

ChinaFotoPress | Getty Images News | Getty Images

But as the Chinese economy continues to slow and commodity prices fall, fueling concerns about an imminent end to Australia’s resource boom, some analysts question whether the miners should be spending the money.

Senior Resources Analyst from Morningstar Mark Taylor says iron ore mining is all about having enough infrastructure to ship as much ore as you can, but adds that if no one is buying the commodity, then it’s pointless having huge ports.

Australian mining giant Rio Tinto is in the process of upgrading its port facilities at Dampier, where it has three operations and is spending around $3 billion to significantly expand the size of its Cape Lambert port as it works to boost its total iron ore production to 353 million metric tons a year by 2015.

Iron ore ports are scattered right across the Pilbara in western Australia and process the ore mined by the likes of Rio Tinto, BHP Billiton and Fortescue Metals.

Rio Tinto’s Dampier ports currently handle around 1500 ships a year and export around 230 million metric tons of iron ore, most of which is bound for China, Japan, South Korea and Taiwan.

Taylor says it’s hard to tell whether the miners are spending when they shouldn’t be because no one knows if the resources boom will end, but adds miners should be making prudent investment decisions and being innovative with their operations.

“BHP is getting to a point where perhaps it is going to have to make a decision on whether it’s going to write more cheques to fund expansion because it could be to its detriment,” Taylor said.

He adds that flooding the market with too much supply will drag on commodity prices but says that if Australia’s miners do not expand, they risk losing market share to competitors, if the predicted slowdown doesn’t materialize.

Recent reports have suggested BHP Billiton is reviewing it expansion program at Port Hedland but the company has denied the claims. Others are not as convinced the mining boom is about to come to an abrupt halt.

Paul Bloxham, the Chief Economist at HSBC, tells CNBC that the mining boom is here to stay, at least for a while yet as many projects that are in the pipeline have not yet come online.

Bloxham says: “It certainly looks as though we’re near the peak in terms of the additional contribution each year from investment in the mining sector, but what you’ve got to keep in mind of course is that investment is yet to come on-stream in terms of providing a boost to exports.”

In the meantime, the ships from China are still coming and the big miners continue to dig as fast as they can.