Chinese to BHP: enjoy iron ore demand while it lasts

China’s steel producers have a message for Mike Henry: keep the iron ore pumping while the good times last.

BHP CEO-Elect Mike Henry. Picture: Aaron Francis

China’s steel producers have a message for Mike Henry: keep the iron ore pumping while the good times last.

The world’s biggest iron ore consumer bought more than a billion tonnes of the steelmaking material from around the world in 2018 and appears set for another year of strong import demand, boosting the coffers of major Australian exporters BHP, Rio Tinto and Fortescue Metals.

But as Henry prepares to take the top job at BHP, the China group representing the nation’s steelmakers said BHP should cash in while it could, given uncertainties over the medium-term outlook for the commodity.

“We’ve had the supply issues in Brazil but Australian exporters like BHP have been a very important part of our picture for the steel mills,” said Li Xinchuang, vice-president of the China Iron and Steel Association and president of the China Metallurgical Industry Planning and Research Institute.

“We expect next year we will see demand for iron ore remain strong but beyond that is a more uncertain scenario.”

BHP under Andrew Mackenzie fine-tuned the company’s Pilbara iron ore mines into an earnings machine, underpinned by a price surge in the first half of the year.

The mining giant’s iron ore division booked annual earnings before interest and tax of $US9.4bn ($13.8bn).

BHP is now in a position to claim Rio Tinto’s prized position as the Pilbara’s lowest-cost producer, declaring its annual average unit costs of production had dipped below $US13 a tonne last financial year.

On being named as the next BHP chief executive this week Henry told investors to expect more of the same, with no change in fundamental strategy.

“I have the luxury of being able to lead a company that is in really good shape. We’ve got a great strategy and I see my job as the next CEO is to build on that foundation we’ve created to accelerate on our performance, first of all on safety and then on productivity,” he said.

Henry’s stint over the last three years running the Australian operations has given the Canadian executive an up-close view of the crown jewel in BHP’s cash cow and Li expects the Melbourne-based corporate will keep its foot on the accelerator. “Of course we have seen the announcement about the power moving from Mr Mackenzie to Mr Henry and we think at least here on the ground that the BHP strategy will stay very much the same. Maximise the export potential of BHP’s premium iron ore and we expect that focus on costs will possibly pick up even more as part of the company’s mantra going forward.”

Despite operational issues that hit the company last year, BHP still shipped 270.5 million tonnes of iron ore for the 2019 year, and pushed out near-record volumes in the June quarter of 71.1 million tonnes — an annualised rate of 284.4 million tonnes.

Total output from BHP’s Pilbara iron ore operations fell 3 per cent to 69 million tonnes in the September quarter, however, as it carried out maintenance at its Port Hedland port operations.

Still, a big lift in volumes is coming, with BHP planning to ship up to 286 million tonnes in the current fiscal year, up from 270.5 million tonnes last year.

Li said he expects all of Australia’s iron ore volumes will find buyers in the current China market, but cautions that out into the middle part of the next decade could see more uncertainty.

“Provided prices don’t shoot up again we see that demand picture being strong as we look forward,” Mr Li said. “But there will be some uncertainties over the longer-term as is the way with many commodities. BHP, just like Rio and Vale, has a good picture ahead. China is still growing and that industrial base will need these materials for some time.”