Majors remain bearish on iron ore

BHP head Andrew Mackenzie has reiterated his pessimistic position on iron ore, pointing to the growing oversupply issue.

Speaking yesterday at the Australian Financial Review Business Summit, Mackenzie stated additional tonnages being added to the market coupled with softening Chinese demand as the country transitions to a new economy is slamming the industry.

"There is no doubt about it in the way the Chinese economy is evolving. Ultimately, we think the excess of supply will drive prices lower from where they are currently," he said.

"Directionally, I would say prepare for lower-for-longer."

His comments come as the metal slides from a peak of just over US$60 per tonne to hover above the US$50 per tonne market.

BHP has long been blamed for contributing to the current state of oversupply, to the point where fellow iron ore miners such as Andrew Forrest’s Fortescue Metals group have called for a parliamentary investigation into the issue.

However the miner recently announced a change in its strategy in regards to increasing production rates.

Speaking at a conference last month, BHP CEO Andrew Mackenzie announced BHP’s reversal in position, saying a renewed focus on cash flows means it will no longer rely on higher volumes.

"High quality medium-to-longer term projects will only be pursued at a time when they add greater value than all other options, and do not exacerbate the current supply-demand imbalances,” Mackenzie said.

The miner’s free cash flow will now be focused on value creation and protecting its balance sheet, as well as providing shareholder returns.

“Excess free cash flow will be used for additional returns to shareholders, organic and inorganic value creation projects, or used to strengthen our balance sheet," he said.

It came on the back of BHP’s latest results, in which it reported a US$5.67 billion loss and major restructuring of the business.

Mackenzie also used the AFR Business Summit to call for tax reform in Australia, stating the country may risk foreign investment if it did not change soon.

“Having a higher [tax] rate disadvantages Australian businesses making it harder to compete globally, and making it harder for us to employ, train and promote Australian talent,” Mackenzie said.

He called on the government to rebalance how it raises revenue from taxes.

“We need a collective debate of all things," Mackenzie stated.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.