Days of “heady growth” over for miners

Colin Barnett, the premier of Western Australia, is of the belief that the days of “heady growth” for China’s steel industry are now a thing of the past, and it will become a much more competitive industry for iron ore mining companies.

Barnett believes that there is still some growth left in the industry with China’s steel production forecast to increase to 780 million tons for this calendar year compared to 720 million tons in 2012, but miners can no longer take for granted that they are guaranteed growth. “The days of simply producing more iron ore and then just getting it absorbed into the market with a rapidly growing China have changed”, he said.

Recognising the unsustainability of the boom, mining heavyweights BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) have both been selling off non-core projects and decreasing capital expenditure in order to cut costs. Yesterday, BHP opened its new high-tech remote operating centre in Perth, which the company expects will enable it to monitor and control its iron-ore assets from afar, allowing it to increase productivity in the division.

Foolish takeaway

Fortescue Metals Group (ASX: FMG), a pure iron-ore company, was smashed by the market a few weeks ago as it announced a production downgrade for the year. As growth in China continues its slow-down, it is necessary that miners reduce their costs and focus on sustainability to ensure they remain competitive in the industry.

Meanwhile, The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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