BHP to work what they’ve got one fifth harder

BHP Billiton has announced it will lift its iron ore capacity targets by nearly a fifth by simply working its existing mines, rain lines and port harder.

The announcement comes in a softer iron ore market, rife with commodity price uncertainty. The SMH reported this to be a direct result of China’s stuttering demand for the resource.

Like fellow miner Fortescue Metals, BHP has opted to slow expansion plans.

The mining giant has recently canned plans to build the massive Red Hill and Saraji East coal developments in Queensland, citing a "challenging external environment" for the cutback, as the iron ore market started to shift.

They have also shelved the $20 billion iron ore harbour project at Port Headland in Western Australia in an effort to shift the company’s focus toward milking more out of its existing assets and increasing its capacity in smaller steps without huge capital outlays.

"Looking forward, things are not as rosy as they were in the past. The imperative to grow as aggressively as we were in the past has diminished slightly," BHP’s iron ore chief Wilson said.

Rio Tinto is still rolling on with its expansion plans which are said will add a third more capacity in comparison with BHP and be more than double Fortescue’s outputs.

SMH reported that analysts said BHP's and Fortescue's deferral of growth plans reflected more on lower cash flows rather than longer term pessimism about China's growth and demand for iron ore.

"This is more about conserving capital in the current environment than concern over weaker markets," said Fat Prophets mining analyst David Lennox.

However, Australian mining reported in October BHP Billiton's chief executive Marius Kloppers said the global iron ore market will slow down as China’s steel consumption has now peaked.

At the time Kloppers predicted that the iron ore market will slow down to 650 million tonnes this decade, down from 800 million tonnes last decade.

Kloppers said that as China moved towards a consumption-led economy, there were still opportunities for companies who could supply competitive and low-cost steel.
BHP said commodities such as copper, energy and aluminium will continue to be in high demand in China.

"As these cities and buildings are completed and as people continue moving to the cities, their future needs will include the next level of consumer goods being kitchen appliances, heating and air-conditioning, cars, and so on," he said.

"While all this occurs, steel intensity per unit of GDP will continue to moderate, and growth rates for iron ore and coal are likely to decrease."

Image: The Australian

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