Iron ore to take longer to balance, says BHP
THE IRON ore market would take longer to balance out than other commodities as excess supply might take years to be absorbed after a boom, according to BHP Billiton’s chief executive Andrew Mackenzie.
“There are some commodities, like oil and copper, where there is a natural decline because pressure drops off, grade drops off,” Mackenzie said. “One of the markets that will take longest to come back into balance is the iron ore market.”
Bearish
Iron ore dropped for three years to 2015 as low-cost producers, including BHP and rivals Rio Tinto Group and Fortescue Metals Group, ramped up output as growth cooled in China. Prices staged an unexpected rally in the opening months of this year, before dropping again.
Mackenzie said in March that he was more bearish on iron ore than other raw materials BHP produced.
“The reality is we’ve settled down now to a price that we would say is more realistic on the basis of fundamentals of supply and demand,” Mackenzie said. “We’ve had such a long boom. To walk that through, in my view, may take another 10 years.”
Ore with 62 percent content was at $51.06 (R762.13) a dry ton on Monday after losing 28 percent since topping $70 in April, according to Metal Bulletin. The raw material peaked in 2011 at more than $191, and the slump prompted closures and mergers among highercost producers.
“Consolidation, particularly of the high-cost producers, it will carry on much longer than you think they humanly should,” Mackenzie said. “In
the meantime, you’ve got to be at the bottom of the cost curve… running things in the most productive way possible, or your hedge funds won’t want to invest in us.”
Mackenzie said last month that BHP was increasing exploration and investment in
copper and oil, signalling a shift from cutting costs with or without a recovery in prices.
The firm previously flagged copper and petroleum as its key focus for growth amid expected supply constraints for both commodities.
Crude oil, which plunged in
February to the lowest since 2003, has rebounded almost 90 percent amid signs that the global surplus was easing as US output dropped. While copper prices were lower in London this year, BHP forecast a deficit might swell to more than 4 million tons from 2023.
There was more iron ore supply on the horizon, according to Goldman Sachs. The largest producers would expand shipments in the third quarter, and even minor suppliers were expected to boost exports, the bank said.
Cargoes from Australia might rise 10 percent to 846 million tons this year, while Brazilian exports would gain about 7 percent to 393 million tons. – Bloomberg