BHP Billiton expects growth in iron ore supply to outpace demand and keep prices under pressure, a senior official said on Thursday, but added that boosting earnings will not hinge on restraining production.
“We’ve long been advocates for free and fair markets … our view is that’s what we need in the iron ore sector,” Alan Chirgwin, vice president for marketing at BHP told an industry conference.
“This is a market which is highly competitive, it’s cyclical and so earnings outperfomance will be dependent on being the most efficient supplier and it shouldn’t be dependent upon supply restraint.”
BHP, the world’s No. 3 iron ore miner, and rival Rio Tinto face mounting political pressure in Australia for sharply boosting supply as demand growth has eased, leading prices to plummet 54 percent from the start of last year. Independent federal Senator Nick Xenophon has called for an inquiry into the impact of lower prices on the Australian economy.
Chirgwin said global iron ore supply could rise between 100 million and 110 million tonnes this year while demand is only estimated to grow between 30 million and 40 million tonnes.”Supply growth over the last 12 months has outpaced demand growth and that will keep pressure on prices next year,” he said.
More high cost iron ore output needs to be displaced, said Chirgwin, estimating that about 90 million tonnes have exited the market from last year through the first quarter of 2015.
Iron ore, used in making steel, dropped to a decade-low of $46.70 a tonne .IO62-CNI=SI in April before regaining ground to trade above $60.
But a Reuters poll of analysts and brokers shows the price is expected to average below $60 this year and next as rising supply and shrinking steel demand in top market China suggest the worst may not be over for the commodity.
BHP on Tuesday said it would slash its iron ore production cost by 21 percent to $16 per tonne in the 2016 financial year and cut spending to better withstand a downturn in commodity prices.