The Courier-Mail



TO get a grip on de­mand, BHP Bil­li­ton CEO An­drew Macken­zie sends his staff out to count air con­di­tion­ing units, cal­cu­late the depths of base­ments and work out the amount of steel in each build­ing in var­i­ous cities around China.

Af­ter a reg­u­lar six-month re­view of its data, in­clud­ing sur­veys in cities such as Xi’an and Guangzhou, BHP last week trimmed its forecast for China’s steel pro­duc­tion by as much as 15 per cent.

BHP mines the iron ore which is a key in­gre­di­ent in steel and China is the world’s big­gest steel­maker.

An­a­lysts at Platy­pus As­set Man­age­ment and CMC Mar­kets Asia say BHP and ri­val iron ore pro­duc­ers will prob­a­bly need to make fur­ther cuts to fore­casts on Chi­nese steel out­put.

“Po­ten­tially the growth out­look for China is worse than peo­ple are think­ing,’’ said Don Wil­liams, chief in­vest­ment of­fi­cer at Platy­pus.

Platy­pus be­gan selling its shares in BHP and Rio Tinto in 2012, judg­ing the out­look for iron ore pro­duc­ers was weak­en­ing, he said.

He said min­ers have been slow to recog­nise and re­spond to China’s weaker growth, re­flected in both their fore­casts and in the con­tin­ued ex­pan­sions of iron ore out­put.

Glen­core CEO Ivan Glasen­berg re­cently said the largest min­ing com­pa­nies have been wrong-footed on slower growth in China, with de­mand get­ting tricky to call.

Con­cern over the fal­ter­ing growth has sent iron prices tum­bling 24 per cent this year.

BHP, which sup­plies cok­ing coal as well as iron ore to China’s steel mills, now fore­casts Chi­nese steel out­put will prob­a­bly peak in the mid 2020s at be­tween 935 mil­lion tonnes and 985 mil­lion tonnes. It had said as re­cently as May that pro­duc­tion would reach as much as 1.1 bil­lion tonnes by the mid­dle of the next decade.

Mr Macken­zie said he was con­fi­dent about the re­vi­sion, say­ing the com­pany had taken a re­al­is­tic view af­ter “bot­tom-up” anal­y­sis in “in­cred­i­ble de­tail.”

Rio also re­cently re­vis­ited its forecast that China will pro­duce 1 bil­lion tonnes by 2030 and is stick­ing by the fig­ure, CEO Sam Walsh said ear­lier this month.

“Let me as­sure you, it’s gone through ro­bust re­view,” he said.

Ric Spooner, an an­a­lyst at CMC Mar­kets, said the min­ers re­main “well north” of many of the other fore­casts on China’s steel out­put.

Both BHP and Rio forecast China will meet its growth goal of 7 per cent this year.

“Our data to­day would say that they are pretty much grow­ing at 7 per cent, and there­fore you can trust their num­bers,“Mr Macken­zie said.

He said BHP had been on the ground in China for more than 20 years and its fore­casts were based on re­search.

Wu Zhili, a steel an­a­lyst at Shen­hua Fu­tures Co in Shen­zhen, said it was dif­fi­cult to see steel out­put ris­ing fur­ther in the long term as de­mand had been so weak.

“Min­ing com­pa­nies will prob­a­bly in­flu­ence each other in terms of their out­look,” Mr Wu said.

BHP shares closed on Fri­day at $25.49 and Rio’s at $51.10.

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