The latest production reports from mining giants BHP Billiton and Rio Tinto hammer home an uncomfortable truth: No matter how much output increases and costs are cut, falling commodity prices triumph.

Both BHP and Rio Tinto released reports this week that met market expectations and re-affirmed production guidance for the world’s top two mining companies.

While it’s no doubt positive for the Anglo-Australian miners that they are successfully executing plans to boost output while containing costs, the numbers make for some sobering reading.

Rio Tinto, the world’s second-largest iron ore producer after Brazil’s Vale, said it expected to mine 330 million tonnes of the steel-making ingredient at its Western Australia mines in 2015 on a 100 percent basis, up from 280.6 million tonnes last year. (www.riotinto.com)

The average price achieved in 2014 was $84.30 a tonne, Rio Tinto said, which would yield revenue of about $23.65 billion, on a 100 percent basis from the Pilbarra region. Rio Tinto’s actual share of that would be about $18.95 billion, as some of its mined output accrues to partners.

And given the structural oversupply in the market and muted demand growth from top importer China, it seems unlikely that the price will rally significantly in 2015.

The Asian spot price for iron ore .IO62-CNI=SI was $67.40 a tonne on Tuesday, for instance, down 5.3 percent from the beginning of the year.

If iron ore averages around the current price, Rio Tinto’s 330 million tonne output would give about $22.24 billion, or about $1.4 billion less than what was achieved in 2014.

For BHP, the No.3 iron ore producer, the numbers are similar.

It expects to increase iron ore output to 245 million tonnes, on a 100 percent basis, in the 2015 financial year that ends on June 30. To that end it achieved 124 million tonnes of output in the half-year ended December 2014, a 15 percent jump on the same period a year earlier. (www.bhpbilliton.com)

BHP achieved an iron ore price of $70 a tonne in the half-year to December 2014, meaning revenue on the company’s share of its iron ore output was about $9.34 billion. In the same period a year earlier it received $112 a tonne, giving revenue of about $10.9 billion.

In other words, BHP’s extra 15.8 million tonnes in iron ore output resulted in a loss of about $1.56 billion in revenue as the price fell far faster than production rose.

CAN COSTS BE CUT ENOUGH?

Executives at both companies have been at pains to stress that they will be able to cut costs enough to offset the impact of lower commodity prices.

The numbers in the output reports show the scale of that challenge.

Cost-cutting also tends to be one-off in nature, insofar as once an expenditure has been removed, it can’t be cut again.

Eventually, too, costs creep up again as new equipment is acquired and maintenance is needed to keep operations going.

The companies are probably hoping that commodity prices will recover in time to allow them breathing space, but that is far from certain.

So far, I’ve focused on iron ore, given its importance to Rio Tinto, which gets some 90 percent of its profits from that division, and to BHP as well.

It’s a similar story for many of the other commodities the two produce, including coal and copper, and in BHP’s output of crude oil and natural gas.

There may even be some irony in the fact that the best performing commodities, namely aluminium and its raw materials alumina and bauxite, are the ones BHP is seeking to hive off into a new company.

While several equity analysts have maintained positive outlooks on BHP and Rio Tinto, mainly on the assurances that dividends will rise as cost-cutting will outweigh commodity price declines, the market remains unconvinced.

BHP’s Australian-listed shares ended Tuesday at A$27.48 ($22.50), down 6.4 percent so far this year and some 45 percent lower than the 2011 peak that came as the company was embarking on its massive iron ore expansions.

Rio Tinto’s Australian-listed stock ended Tuesday at A$53.69, down 7.4 percent in 2015 and some 40 percent below their 2011 peak.

The stock market is telling BHP and Rio Tinto that their message on still delivering strong profits at a time of structurally lower commodity prices has yet to be fully believed.

Disclosure: At the time of publication Clyde Russell owned shares in BHP Billiton and Rio Tinto as an investor in a fund.