Posted on 19 Oct 2011
Global miner BHP Billiton reported a 24 percent jump in quarterly iron ore production on Wednesday, its foot stuck firmly to the accelerator even as prices for the steel-making commodity slide and Chinese steel mills wind back output.
BHP's iron ore production for the September quarter largely met market expectations, putting it on a record annual run rate of 173 million tonnes and mirroring ramp-ups from bigger rivals Rio Tinto and Brazil's Vale .
BHP said improvements to its Australian rail system, which hauls iron ore from desert mines to the coast, helped boost production. It gave no comments on demand in the quarterly report but it has always maintained that it sells all it mines.
But with iron ore prices tumbling in recent weeks, there are question marks over the near-term outlook, given that the world's biggest iron ore consumer, China, faces pressure on steel margins as Beijing engineers a soft economic landing.
Chinese crude steel production in September fell to its lowest point in seven months.
"The overall market is in panic as small mills have started to shut down some blast furnaces, while big ones are relying on their existing iron ore inventories and reduced buying," an iron ore trader in China said on the eve of BHP's production report.
The world's biggest iron ore miner, Vale, also appears to be responding to the weakening demand from some Chinese mills, offering to sell them cheaper spot-priced ore rather than ore priced under quarterly contracts.
Spot iron ore fell almost 70 percent to $56 a tonne in November 2008 after the global financial crisis struck, then almost tripled to a high of around $192 last February. It has since slumped 22 percent to around $150.
But BHP and other big producers seem unfazed, given iron ore has a history of price volatility and that China's industrial revolution promises strong demand for decades to come.
"Demand is not collapsing, it's slowing down," said Henry Liu, regional head of commodity research at Mirae Asset Securities in Hong Kong. "It's too early for miners to decide to cut iron ore production."
Grant Craighead, a mining analyst with Stock Resource in Sydney, said the major producers could exploit the slump in prices to elbow out smaller, higher-cost miners and become even more dominant suppliers for the longer term.
"Your competitive advantage if you are BHP or the like is you are able to take on mega-projects that add 50 to 100 million tonnes that small to medium-sized companies clearly cannot and survive the price cycle," Craighead said.
Rio Tinto last week posted record quarterly iron ore output and has since approved an extra $1.3 billion in spending to accelerate development of its giant Simandou iron ore project in Guinea.
BHP's iron ore output in the quarter totalled 39.57 million tonnes, up 24 percent from a year earlier and up from 35.53 million in the June quarter.
Some analysts had been expecting shipments of around 43 million in the September quarter but the tally did little to dent the company's shares, which were up about 0.3 percent in afternoon trade in a steady market .
