‘The Answer to That Is No’ | BHP Stands by Iron-Ore Expansion - Maritime and Salvage Wolrd News

By Jasmine Ng

(Bloomberg) — BHP Billiton Ltd. defended its technique of boosting iron-ore output at a time of falling costs and international oversupply, saying that reducing again to reverse the drop would penalize shareholders on this planet’s largest mining firm.

Should the Melbourne-based firm cut back output of the steelmaking uncooked materials, provide can be stuffed by others, Jimmy Wilson, head of BHP’s iron-ore enterprise, stated at a media briefing in Perth, Australia, on Tuesday. Earlier, Wilson advised a convention within the metropolis that elevating manufacturing whereas additionally bettering effectivity was aiding Australia’s competitiveness.

Iron ore sank 47 p.c in 2014 and prolonged losses this 12 months as surging low-cost provide from BHP and Rio Tinto Group, Australia’s high producers, spurred a surplus simply as demand development slowed in China. Wilson’s remarks, which echoed feedback final month from Rio Chief Executive Officer Sam Walsh, sign there shall be no change after all from BHP at the same time as costs drop. Iron ore might discover a flooring at about $50 a metric ton, Citigroup Inc.’s Mark Lyons advised the convention.

“Do we see value in us pulling back our volume with the objective of increasing the price?” stated Wilson. “The answer to that is absolutely no. If we pull back our volume, that volume will be filled by other companies. At the end of the day, we will be penalizing, in essence, our shareholders.”

Price Slips

Ore with 62 p.c content material at Qingdao slid 0.7 p.c to $58.15 a dry ton on Tuesday, falling a sixth day, in response to information from Metal Bulletin Ltd. That’s the bottom value since no less than May 2008, when Metal Bulletin began compiling weekly costs. The commodity is eighteen p.c decrease this 12 months.

“The market will always go back into balance,” Wilson advised reporters on the briefing. “The majors are not struggling to sell their products at this stage,” he stated, referring to the business’s largest suppliers.

BHP shares are 8 p.c increased in London this 12 months after shedding 26 p.c in 2014 as iron ore collapsed. Last month, the corporate reported better-than-expected underlying revenue of $5.4 billion within the six months to Dec. 31, in contrast with $7.8 billion a 12 months earlier. The inventory traded down 2.9 p.c at 1,499.5 pence as of 1:37 p.m. native time.

“Is there any chance the major producers will reassess and downgrade their plans, given where the price is? We think not,” Laura Brooks, a senior marketing consultant at CRU Group, advised the convention. “One reason for this is that competitive pressure is driving producers to seek cost reductions, and volume is critical if unit costs are to be cut.”

Record Output

Production from operations in Western Australia was a file 124 million tons within the first half, and will attain 245 million tons within the 2015 monetary 12 months, BHP stated in an announcement on Tuesday earlier than Wilson’s deal with. The firm is on schedule to realize money prices under $20 a ton, BHP stated.

“With this strategy, we are maintaining Australia’s competitive position in the global market and providing the revenue, royalties, employment and innovation that is so important for this country’s future,” stated Wilson.

BHP anticipated the elevated provide of seaborne ore and accepted the final of its main capital investments within the Pilbara in 2011, it stated. Further development will come from making present infrastructure extra productive, Wilson stated.

“Beyond the 290 mark, we don’t see ourselves going too far beyond that,” Wilson stated, referring to an annual capability goal. There shall be “continued productivity, but there will be no capital, no capital, to grow volumes,” he stated.

Walsh’s View

Rio’s Walsh stated final month that if his firm lowered output, forfeited provide can be made up by higher-cost opponents. The London-based firm, which additionally mines within the ore-rich Pilbara area, is on observe to ship 330 million tons of output by 2015 and 350 million tons by 2017, Iron Ore Chief Executive Andrew Harding stated on the convention.

The international surplus will surge to 437 million tons in 2018 from 184 million tons this 12 months, Morgan Stanley stated on Feb. 22. Global seaborne provide is projected to extend 4.6 p.c in 2015, topping the three p.c development in demand, in response to the financial institution, which sees iron ore averaging $79 a ton this 12 months.

There’s a flooring for costs at about $50 a ton, stated Lyons, Citigroup’s head of iron ore and metal. At present costs, an estimated 38 p.c of world output isn’t producing money, in response to CRU.

“The big guys are saying: ‘We’ve got huge margins, so we’ll keep pumping out iron ore because we’re still making money’,” stated Justin Smirk, a senior economist at Westpac Banking Corp. “He who has the lowest cost wins.”

–With help from Phoebe Sedgman in Melbourne.