BHP TRIMS FORECAST FOR CHINA’S STEEL PRODUCTION
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.