In an address at the BHP Billiton annual general meeting overnight, the company’s chief executive Marius Kloppers voiced his belief that the Chinese inventory build-up had concluded and iron ore demand would pull back.
“We believe that recently there has been a substantial inventory build in China across commodities at both the end user level and with traders and strategic stockpiles,” he said.
“It is thus our view that restocking in China is now essentially complete and we are seeing signs of a pullback in demand as a consequence.”
According to Kloppers, China had sometimes been the only source of demand for commodities in the second half of 2009.
“Over the past six months we have seen quite a rebound in commodity prices and in particular, the velocity of the recovery in China has indeed been surprising,” he said.
“This demand represented both restocking and underlying demand.
“The key question for us is just how much of the recovery in China has been as a result of pent-up demand from a much depleted inventory chain and how much represents real underlying demand?” Kloppers said.
Kloppers said steel capacity usage also fell to 50% in the three major steel markets outside of China; the US, Europe and Japan.
“We are now seeing the utilisation rate climb as the first evidence that restocking in the major economies has commenced,” he said.
“The key driver of incremental commodities demand in the near term will be to what extent the OECD experiences a more usual post recession restocking, or whether the restocking will be more lethargic this time around.
“It is our view that we will come out of this recession less strongly than in previous cycles.
“We, therefore, believe it won’t be until mid 2010 before we see clean underlying demand that is not masked by inventory effects.”
Outgoing BHP chairman Don Argus said the company was well positioned to meet the resource needs of both developing and developed economies as they return to health.
“In an uncertain world we remain confident of the ability of our company to continue to create value for shareholders, employees and the communities in which we operate,” he said.