BHP CEO Expects China’s Domestic Iron Ore Output Cuts to Deepen

BHP Billiton Ltd., the world’s largest mining company, expects China to cut more higher-cost domestic iron ore output as the biggest global producers flood the market with low-cost supply.

“As Australia expands its ability to export more and more high-quality iron ore, the Chinese are producing less and less domestically,” BHP Chief Executive Officer Andrew Mackenzie told reporters today in Sydney at the B-20 forum of business leaders. He also predicts a similar process in India as steel mills buy more low-cost coking coal from Australia.

As prices dropped on increased supply, between 20 percent and 30 percent of the iron ore mines in China have closed down, according to the China Metallurgical Mining Enterprise Association. The Chinese market is becoming saturated with lower-cost imports from Australia and Brazil, Morgan Stanley said last month in a report, forecasting lower prices even as Chinese mines shut down.

Iron ore, which has slipped 27 percent this year, may trade between $90 a metric ton and $110 a ton this half on declining Chinese production, a pause in expansion export capacity and improving Chinese steel demand, according to Citigroup Inc. Miners including BHP, Rio Tinto Group and Vale SA are raising output and spurring a global glut of the steelmaking ingredient, which slumped into a bear market in March. Prices probably will fall again in 2015, Citigroup said.

China’s economic growth has accelerated for the first time in three quarters on government spending and rose 7.5 percent in the April-June period from a year earlier, the country’s statistics bureau said today.

India is expanding its requirements for coking coal that’s used to make steel, according to Mackenzie.

“We are expanding to meet that,” Mackenzie said. “I would predict that they in turn would choose the low-cost material from Australia in preference to a more expensive domestic one.”

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