Posted on 30 Oct 2015
BHP Billiton says Chinese steel demand will probably keep falling until early next year, a quarter longer than expected, as infrastructure spending is delayed, putting continued pressure on iron ore prices trading below $US50 a tonne for the first time in three months.
But the mining giant has not reversed its expectations for a service-led recovery in China’s growth, with marketing boss Arnoud Balhuizen saying the company is maintaining its position that the Asian powerhouse’s economy will pick up this half.
Mr Balhuizen told The Australian that money allocated to specific infrastructure projects in China, which had been expected to help halt declining steel demand, was taking longer than expected to spur activity.
“The decision-making and allocation is taking a little more time, and therefore we expect what we initially saw happening in the fourth quarter, in the way of steel (demand) stabilisation, that could start a quarter later,” the Singapore-based marketing boss said today during a visit to Sydney.
“We expect the slide in steel demand to stop, and then we will go back to slow but sustainable growth in steel towards the steel numbers we talked about earlier in the year.”
At its full-year result in August, BHP pulled back its forecast for peak Chinese steel production from 1-1.1 billion tonnes in the mid 2020s to between 935 million and 985 million tonnes.
But this still includes growth from current levels of about 820 million tonnes, making BHP more optimistic than many other forecasters.
Iron ore prices tracked by the Steel Index fell to a three-month low of $US49 a tonne last night, on a mix of slowing demand and expectations of increased supply.
Mr Balhuizen said the delay to infrastructure demand was, among other things, putting pressure on iron ore prices.
“Steel margins are under pressure and there is no positive sentiment at the moment around steel picking up towards the fourth quarter, plus there are seasonal slowdowns,” he said.
“All these individual elements are putting pressure on the iron ore price.”
In August, BHP said it still expected China to log 7 per cent economic growth in 2015, which would require a second-half pick-up.
This is still expected, despite the delay in a steel turnaround.
“We continue to see a strength in the services sector and underlying demand for retail,” Mr Balhuizen said.
“Therefore the composition of the GDP is changing, but everything bottoming out. The quarter was stronger than the previous quarter and our view (on a pick-up) has not changed.”
