Iron ore miners to slash dividends as commodity price falls again

AUSTRALIA’S biggest iron ore miners are expected to slash dividends as the price of the steelmaking commodity dropped to $US40 a tonne overnight.

AUSTRALIA’S biggest iron ore miners are expected to slash dividends next month as the price of the steelmaking commodity dropped to $US40 a tonne overnight.

Further price falls are expected this year as Pilbara miners BHP Billiton, Rio Tinto and Fortescue Metals Group continue to boost production amid weak Chinese steel demand and a global oversupply.

Analysts say a suitable cash return for investors in the current commodity price environment would be around four to five per cent, rather than the 11 per cent paid by BHP and 7.5 per cent offered by Rio.

CMC Markets analyst Michael McCarthy predicts BHP and Rio will cut their dividends when they report their financial results in February.

“In cutting the dividend and moving it back to reflect the commodities cycle, BHP would be normalising its dividend policy,” Mr McCarthy said.

“I would suggest Rio is likely to cut too.”

A decision to remove BHP’s progressive dividend policy would be seen as a sign of responsible management in the weak price environment, Mr McCarthy said.

He added that production cuts were unlikely, but sector-wide production was likely to peak around mid-2016.

Major iron ore miners are expecting to slash dividends as the commodity price falls further. File image.

Both companies derive a large amount of their earnings from iron ore.

BHP shares are trading around 10-year lows as the price of Australia’s largest export fell 90 US cents to $US40 a tonne overnight.

ANZ Commodity Strategist Daniel Hynes predicts iron ore prices will trade between $US35 to $US40 a tonne in the first quarter but said the probability of prices breaking below this range in the short term is rising daily.

Mine Life analyst Gavin Wendt said the global iron ore glut and subsequent price falls were largely of BHP and Rio Tinto’s own making.

“They misread the market by 10 to 15 years and that’s compounded the problem,” Mr Wendt said.

He predicts a very tough 12 months ahead for producers as iron ore prices struggle to trade above $US30 a tonne.

RBS Morgans director of equities Bill Chatterton warned small, high cost producers were at risk in the current market.

“I can’t see a short-term catalyst for an improvement in the iron ore price,” Mr Chatterton said.

Maintaining high dividends did not make sense for BHP and Rio at this point in the commodities cycle, he said.

It comes after Gindalbie Metals confirmed it is at risk of collapse, saying on Tuesday its majority Chinese partner at the Karara iron ore project, Ansteel, is unable to continue to provide funding support due to the economic and industry downturn.

Originally published as Iron ore miners to slash dividends as commodity price falls again