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Melbourne - BHP Billiton [JSE:BIL] will curb the pace of its iron ore expansion in Australia as a supply glut sees prices trade near a 10-year low.
A planned project to reduce bottlenecks at Port Hedland, the world’s biggest bulk export terminal, will be deferred, slowing the supplier’s path to a production target of 290 million metric tons a year, BHP said today in a statement.
’’It demonstrates flexibility from them and a capacity to adapt to changing circumstances,’’ said Ric Spooner, a chief strategist at CMC Markets in Sydney said by phone.
“It will leave them with a very competitive cost base.”
The strategy of BHP and rivals of continuing to expand output in the face of a price rout has earned the ire of some analysts, investors and loss-making rivals. BHP has described the tactic as “squeezing the lemon.”
BHP declined 2% to A$30.00 at 02:00, trimming its advance this year to 2.2%.
The producer was seeking to meet its 290 million to target by the end of June 2017. The debottlenecking project at the Western Australia port had been intended to raise output by about 20 million tons, the producer said in October.
The world’s biggest mining company, which said it can add the tons without the harbour investment, declined to detail what the planned cost of the project had been or forecast when it will now reach its 290 million tons target, Melbourne-based spokesperson Paul Hitchins said by phone.
BHP raised its 2015 full-year output target from mines in Western Australia’s Pilbara to 250 million tons.
Supply Peak
Iron ore prices have slumped by more than half in the past year and there’s little prospect of a long-term rebound with demand for seaborne supplies likely to peak in 2016, according to Goldman Sachs Group.
A global surplus, fueled by supply additions from producers including BHP to Fortescue Metals, will rise to 108 million tons next year from 74 million tons in 2015, according to HSBC Holdings Plc.
Ore with 62% content delivered to China’s Qingdao declined 1% to $51.04 a dry metric ton on Tuesday, according to Metal Bulletin It fell to $47.08 on April 2, the lowest since 2005.
While supply additions by the largest producers and weaker demand growth have seen iron prices tumble, BHP chief executive officer Andrew Mackenzie said continuing to raise output would best serve investors.
“Despite the subsequent increase in supply-side competition, these low-cost expansions continue to deliver attractive margins and returns through the cycle,” Mackenzie said in the statement.
Output Costs
Production costs in Western Australia have fallen to below $20 a metric ton, Mackenzie said. Rio Tinto is now producing at $17 a ton, CEO Sam Walsh told investors in London on April 18.
Total output from Australia rose to 64.4 million metric tons in the three months through March, from 54.8 million tons a year earlier, BHP said in its statement. That beat the 62.8 million tons median estimate of three analysts surveyed by Bloomberg.
Output from Samarco in Brazil jumped 57% to 3.6 million tons in quarter, BHP said.
London-based Rio’s first-quarter output rose a less-than- estimated 12% as wet weather closed ports in Western Australia, it said yesterday.
