Tale of two updates reveal state of mining sector They were two very different updates - one bearish, one bullish. But this week's trading statements from BHP Billiton and Caterpillar, respectively the world's largest natural resources company and heavy machinery group, neatly captured the state of play in the mining industry. BHP's quarterly production report, published on Tuesday, showed how mining in 2013 is all about volume and costs. Miners are trying to produce as much as they can for as little as they can, while at the same time cutting back on spending. BHP reported output gains in thermal and coking coal, copper, nickel, aluminium and iron ore. Here it recorded a 23 per cent increase in output in the three months to September and also increased its full-year production target to 212m tonnes. The company also drew attention to the $2.7bn of costs it had stripped from the business in the past year and its planned 25 per cent reduction in capital and exploration expenditure. "Our rate of expenditure will decline again next year and if our investment criteria cannot be met in any one project, product or geography," said chief executive Andrew Mackenzie. These themes, writ large across Caterpillar's announcement, led to a sharp drop in its sales and earnings. Reporting a 44 per cent slide in the third-quarter earnings, the maker of bulldozer, draglines and dumper trucks said it had implemented "general austerity" measures to cope with the slowdown in mining activity. Caterpillar said sales to the resource industry would drop 40 per cent year on year in 2013 (it had previously expected a recovery) and said revenues would remain weak in 2014. Explaining the downgrade, Caterpillar chief executive Doug Oberhelman said he had spoken with several mining executives and while they were pretty "bullish" on existing mine production "any expansion in the near term is dead." That news will have be welcomed by mining investors pushing for increased dividends and share buybacks. Unfortunately, there are still billions of dollars worth of investments of projects and expansions approved in the boom years about to come on stream. And these have the potential to damage prices. That said, analysts are nowhere near as worried about new supply as they were at the start of the year, presumably because of robust growth in China. In a report published on Thursday, Rob Clifford at Deutsche Bank said the price of the iron ore would remain above $100 even as 375m tonnes of new capacity hit the market over the next three years. That view was echoed by Jefferies. Our analysis indicates that the much-anticipated iron ore market surplus will take longer than expected to materialise as the demand outlook has improved. If they are right, shares in BHP and other miners could have a strong run. But for companies servicing the mining industry, the opposite is probably true. If Caterpillar's results are a guide, the outlook remains grim.