What’s in store for BHP, Rio and Fortescue in 2014?

The resources boom may be over for some, but not for Australia’s three largest iron ore miners, Rio Tinto (ASX: RIO), BHP Billiton (ASX: BHP) and Fortescue Metals Group (ASX: FMG).

All three are ramping up their Pilbara iron ore production. Rio expects to produce around 290 million tonnes of iron ore in 2014 and more than 330 million tonnes in 2015. BHP produced 170 million tonnes in the 2013 financial year, but is on track to see around 210 million tonnes of production this financial year. Fortescue produced 81 million tonnes in 2013, and expects to be producing 155 million tonnes on an annualised basis by the end of December 2013.

And it seems that the miners have confidence that demand for steel, and its key ingredient, iron ore, will continue to grow, not just from the likes of China, South Korea and Japan, but emerging economies as well. A massive jump in oversupply has not materialised, with Rio noting that new seaborne supply continues to be constrained, while Chinese domestic iron ore is costly and increasingly difficult to access.

We have noted previously, that Chinese steel mills prefer Australian and Brazilian seaborne iron ore, as it’s higher quality and cheaper than domestically produced ore. That could see the iron ore price remain steady at levels of around US$130 a tonne, and personally I don’t see it dropping much below that level for some time.

But it’s not just iron ore where RIO and BHP are ramping up production. BHP is focusing on its four pillars of coal, copper, iron ore and petroleum, as well as other commodities such as aluminium, nickel, potash and manganese. In particular, BHP expects to produce 250 million barrels of oil equivalent in the 2014 financial year – equivalent to around three Woodside Petroleum’s (ASX: WPL).

Rio is virtually a pure play iron ore miner now and increasingly into the future, as iron ore production increases, but also has some smaller copper, aluminium and other commodity assets. Rio’s Oyu Tolgoi copper and gold mine in Mongolia has commenced production, and the company will be looking to maximise production and value in the year ahead.

Fortescue will be focused on generating cash flows to repay its US$12 billion of debt, and has indicated that it will begin to pay consistent dividends in the years ahead.

Foolish takeaway

2014 should be a good year for all three miners, barring anything unforeseen. For investors, BHP offers the greatest diversification should the iron ore price collapse, but those confident that the iron ore price will remain high, Rio and Fortescue are more leveraged to that commodity.


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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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