Friday 22nd Jan, 2021

Stubborn BHP lowers China steel forecast

Iron ore train - credit BHP Billiton
Credit: BHP Billiton

After months of denying speculation that China’s steelmaking would not keep pace with earlier forecasts, major Anglo-Australian miner BHP Billiton has cut its forecast slightly. But chief executive Andrew Mackenzie says it won’t impact demand for BHP’s iron ore.

“While we remain confident in the long-term outlook for commodities demand as emerging economies continue to urbanise and industrialise, we have lowered our forecast of peak Chinese steel demand to between 935 million tonnes and 985 million tonnes [per annum] in the mid-2020s,” he said on Tuesday.

This downgrade will not impact demand for Australian iron ore, however, because most of the reduction would come from steel generated from scrap metal, BHP believes.

BHP and Rio have both maintained forecasts for Chinese steel production of over 1 billion tonnes per annum during the 2020s, while many analysts have downgraded their projections to reflect a slowdown in Chinese growth. The Asian giant currently produces about 820mtpa.

Mackenzie said the forecast downgrade would favour low-cost producers with economies of scale, like BHP Billiton.

“Importantly, we do not require the same level of investment to grow as in the past,” he said. “Improved productivity can further stretch the capacity of our existing operations to increase volumes at very low cost.

“For example, in Western Australia Iron Ore we can increase the [annual] capacity of our system from 254 million tonnes today to 290 million tonnes over time with minimal investment, while making more than US$20 per tonne margin at today’s prices.”

Mackenzie was on the defensive after the company announced a 61.7% decline in statutory EBIT, from $22.65bn to $8.67bn, which was reflected with an 86.2% drop in attributable statutory profit to just $1.9bn.

BHP realised a US$53 per tonne iron ore price during the half year ended June 30, and a US$61 per tonne price for the full 2014/15 financial year – down 41% year-on-year.