Fin24

BHP sees iron ore demand 'flattening'

2012-03-20 08:29

Sydney - Global mining giant BHP Billiton [JSE:BIL] said on Tuesday that Chinese iron ore demand appeared to be flattening as the world’s second-largest economy slows, but prices were expected to hold up.

BHP iron ore president Ian Ashby said he was confident that China would meet its five-year economic growth targets, but iron ore demand would soon hit "single digits if it’s not already there".

China, the world’s largest consumer of raw materials, announced a growth target of 7.5% for 2012, a marked downgrade from last year’s 9.2% growth and 10.4% in 2010.

Its economy swung to a trade deficit of $31.48bn in February, according to the latest figures, with crude oil and other raw materials imports soaring while exports were further hit by weak demand in Europe and the US.

But Ashby said he expected iron ore prices, now at around $145 a tonne, to hold at $120 due to China’s own limited production, and BHP saw a solid future for the key steelmaking commodity in the longer term.

"The pie is big and they are still growing their steel industry," Ashby told reporters at an Australian mining conference.

Rio Tinto said it also remained confident in the iron ore outlook in China.

"Although the rate of GDP (gross domestic product) growth in China is more immediately slowing we remain confident on the basis of the figures we have seen of a soft landing, with solid growth for this year," David Joyce, Rio’s managing director expansion projects, told the conference.

Ashby said BHP was poised to respond to cooling demand but "we haven't slowed down any of the work that allows us to make a decision", adding that its iron ore expansion project was going "full steam ahead".

BHP chief Marius Kloppers warned last month that the company stood ready to scale back production at unprofitable operations as commodity prices fluctuated.

Iron ore had been the exception, with Kloppers saying it would take a "fairly big event" to knock expansion plans off course because freight costs were low and shipments were expected to be profitable even if prices softened.

By 2050 Ashby said 73% of China's 1.4 billion population was expected to be urbanised, compared with 47% in 2010. Car production was forecast to boom 155% by 2025 to 28 million units per year.

Ashby said China’s steel production capacity would hit 1.1 billion tonnes by 2025, compared with 700 million tonnes presently.

The commodities-driven Australian dollar slumped on the remarks to $1.0583 from $1.0620 earlier in the day.