Hockey hopes for iron ore reduction

BHP have pledged to slow their iron ore expansion plans, earning praise from Treasurer Joe Jockey.

With the prospect of $30 billion less iron ore royalties in the federal budget, Hockey has indirectly voiced his expectations that Rio Tinto should follow suit, stating that “common sense must prevail”, AFR reported.

“I’m glad that the producers are taking a more reasonable approach to production levels,” he said.

“Obviously, the price of iron ore is going to have an impact on our budget and we expect our producers to behave in a mature fashion.”

BHP announced on Wednesday that Western Australian iron ore (WAIO) operations for the financial year were expected to be 250Mt.

Due to their installed infrastructure exceeding expectations, BHP said they would defer the Inner Harbour Debottlenecking Project, which would slow progress towards reaching their system capacity of 290Mt.

One of BHPs major shareholders Ross Barker said this was a sensible response to uncertainty in the market.

Iron ore has seen a glimmer of hope in the past fortnight, rallying from the 10 year low of US$46.70 per tonne on April 2, back up to US$52 this week.

ANZ analysts have predicted the budget will face a shortfall of $22 billion if the iron ore price collapses to $35 per tonne, a figure on which Hockey has based his expectations for the 2015 budget.

Despite the government attitude that production should be slowed in the attempt to reduce supply and encourage price recovery, industry pundits suggest reduced production would only provide new market share for rival Brazillian producer Vale.