The mantra in mining has almost always been bigger is better. Miners, particularly in the bulk commodity space, are constantly trying to maximize production from their operations as a way to gain scale and lower costs.
The downside of that strategy is becoming apparent in the last couple of years, as it can lead to massive oversupply when demand falters. Take a look at iron ore for an obvious example.
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Paul Robinson, a director at the commodity researcher CRU Group, said these businesses should make more effort to maximize efficiency at different production levels so that they can reduce output when the marketplace is oversupplied and still maintain very low costs. It doesn’t seem like brain surgery, but it rarely occur in mining with the exception of specific cases (like potash).
“I want to see more flexibility in the market. But philosophically, I don’t think the mining industry thinks this way,” he explained within an interview.
He said the power market is a good model for miners to follow along with. It is very efficient operating at different utilization levels.
