BHP boss downbeat on iron ore prices

Growth in supply from the big miners will outstrip demand growth, says Andrew Mackenzie.

Despite the increased buying from China, prices were more likely to fall than keep rising, said Andrew Mackenzie. Source: BHP Billiton.

BHP Billiton (BHP) managing director Andrew Mackenzie remains downbeat on the future of iron ore prices despite their surprising strength this year, saying growth in supply from the big miners will outstrip demand growth.

The mining chief said that despite the increased buying of the nation’s biggest export from Chinese steel mills, prices were more likely to fall than keep rising.

“We think it’s a temporary effect,” Mr Mackenzie said of the recent price gains to $US60 a tonne.

“There is a bit of extra stimulus in China, combined with a slower ramp-up than was previously expected from the major low-cost producers of seaborne iron ore.”

Those words are not what Canberra wants to hear, with the current budget factoring in an average iron ore price of $US55 a tonne for all of 2016-17.

Mr Mackenzie said there was nothing he had seen that had changed his view that growing iron ore supply from the big miners BHP, Rio Tinto and Vale, would weigh on prices.

“That ramp-up will continue, and I don’t think there will be a corresponding increase in demand to offset that,” he said.

“Therefore, we think that prices have more risk to the downside than the upside going forward.”

As of yesterday, iron ore prices had risen 40 per cent this year to $US60 a tonne.

On the demand side, Chinese construction has rebounded, while on the supply side, Rio has cut guidance by up to 20 million tonnes a year because of delays to its driverless train program and because BHP cut guidance by 10 million tonnes.

BHP was also downbeat on prices of coking coal, of which it is the world’s biggest exporter from its Queensland mines.

“The recent rise in metallurgical coal prices has been driven by seasonal demand, China’s domestic coal capacity controls and temporary supply disruptions in Queensland,” BHP said.

“Near term, prices are expected to trend lower as new projects come online in Australia and Mozambique and more than offset the withdrawal of uneconomic high-cost seaborne supply.”

But longer term, the outlook is “robust” as high quality coking coal is expected to become scarce and Indian demand grows.