It is worth noting that the other two iron ore production giants, BHP Billiton and Rio Tinto Group, have also cut spending by selling non-core assets and other means. BHP Billiton said its spending level this year will be cut to within US$15 billion from last year's US$21.7 billion. Rio Tinto, on the basis of cutting US$2 billion this year, also plans to significantly reduce spending.

Qiu Yuecheng, an analyst at Xiben New Line, told reporters that the three major miners' spending cuts are based on their judgment of the industry cycle, and that to improve profitability they will certainly try every means to reduce costs. “The golden decade of steel has passed, and the overall profitability of miners is also lower than in previous years.”

Some analysts said that the domestic steel industry's long-term policy of cutting overcapacity will, to a certain extent, reduce demand for iron ore from the three major miners.

Large miners cut spending

According to foreign media reports, the world's largest iron ore producer, Brazil's Vale, said the company's capital and R&D spending budget for 2014 will be cut by US$1.5 billion, from this year's US$16.3 billion to US$14.8 billion.

This is the company's third consecutive year of cutting its capital expenditure budget, and also its lowest spending level since 2010. “Iron ore prices have generally declined over the past two years, greatly affecting miners' profitability,” Qiu Yuecheng said.

Vale Chief Executive Murilo Ferreira said the company is committed to reducing production costs and developing higher-margin mines to strengthen shareholder returns.

The world's second-largest mining company, Rio Tinto Group, has similar plans. Rio Tinto recently announced that it has achieved and exceeded its goal of cutting operating expenses by US$2 billion before the end of the year, and said it will prioritize repaying company debt next year.

It is understood that Rio Tinto Group has laid off 3,800 employees since 2012, and another 3,000 employees were forced out of work due to asset sales.

On December 3, Rio Tinto Chief Executive Sam Walsh said in a statement, “We are cutting capital expenditure, and will further reduce spending.”

Data show that Rio Tinto's net debt rose to more than US$19 billion last year, and it urgently needs to cut spending and expand profits to maintain its credit rating. In the next two years, Rio Tinto will further cut spending. In an investor briefing, they said next year's budget will be reduced to US$11 billion from about US$14 billion this year, and by 2015 the capital expenditure budget will be kept within US$8 billion.

Australian iron ore giant BHP Billiton also recently hinted that it may try to keep the company's annual spending within US$15 billion. In the current fiscal year, BHP Billiton has set a budget of about US$16.2 billion. Chief Executive Andrew Mackenzie publicly stated that the company has significantly cut spending in the fiscal year ending June 30, 2014, and may plan further spending cuts in the coming years.

Slowing demand is the main cause

BHP Billiton said in its annual report that as growth in iron ore demand from China and other regional markets slows, global mining companies need to shift their focus to cost control.

Taking China as an example, in 2014, the national crude steel output growth rate is expected to slow. Demand for iron ore is also declining. The China Metallurgical Industry Planning and Research Institute expects the growth rate of crude steel output to slow to 3.8% in 2014 from 6.7% this year.

Iron ore prices have been in an overall downward trend since 2011. According to Qiu Yuecheng, from 2009 to 2010, iron ore prices remained above US$180 per ton, peaking at more than US$200 per ton. He believes this trend will continue, because 2014-2015 is a period of concentrated release of new mining capacity, “but the growth rate of global crude steel output has clearly slowed, making it difficult to absorb the increase in iron ore.”

Jose Carlos Martins, head of Vale's iron ore and strategy division, has expressed a similar view. He believes that due to reduced steel consumption in China and continuously increasing output by mining companies, by 2018 the capacity of iron ore producers will exceed demand by 5%-6%; by 2020 global iron ore capacity may reach about 1.6 billion tons, while consumption is expected to be 1.5 billion tons.

The domestic steel industry will carry out a long-term process of cutting overcapacity in the next five years, and enterprises' demand for raw materials such as iron ore will weaken significantly. “After the end of long-term agreement pricing in 2010, foreign ore prices have mainly been based on index pricing and tendering. Later, the increase in China's overseas equity mines will, to a certain extent, weaken the pricing monopoly position of the three major miners.”