Globally diversified miner BHP Billiton Ltd (BHP) sees a "window of opportunity" in the iron ore market as emerging economies such as China transition from investment-led economic growth to consumption-led economic growth.

 

China, the world's largest steel producer and consumer, is forecast to increase crude steel production to 1.1 billion metric tons a year by 2025 which would equate to a 650 million ton a year increase in global seaborne iron ore demand, Marius Kloppers, the chief executive of the world's largest mining company by market value, said in a presentation given to an audience at the Bank of America Merrill Lynch conference in Florida, Tuesday.

 

"The outlook provides a major opportunity for BHP Billiton and our competitors," he said in the presentation.

 

Kloppers reaffirmed previous comments made by BHP executive Alberto Calderon two weeks ago, noting that projects would be approved "in a sequence that maximizes value, reduces risk and balances short- and long-term returns."

 

BHP has been dogged by concerns that a series of giant projects will increasingly consume its cash and may offer weak returns, as its earnings growth appears to have peaked with the recent fall in prices for many commodities. Some shareholders have been critical of the company's strategy, including plans to invest around US$80 billion on growth over five years and the acquisition last year of shale-gas assets in the U.S.(Source: FoxBusiness)

 

Light turns amber for iron-ore investment – BHP Billiton

 

The light has turned amber for additional investment in iron-ore production, but it remains green for investment in copper, says the world’s biggest diversified mining company.

 

A lower rate of growth is on the way in China’s demand for global seaborne iron-ore but incentive remains for investment in copper, says BHP Billiton CEO Marius Kloppers.

 

While BHP Billiton continues to expect Chinese crude steel production to reach 1.1-billion tons a year by 2025, Kloppers emphasises that this equates to a lower 650-million-tons-a-year rate of growth in the demand for global seaborne iron-ore, which is well down on the 800-million tons a year of the last ten years.

 

Kloppers, who addressed a Bank of America Merrill Lynch conference in the US, says that the outlook for China's iron-ore demand growth is lower in both percentage and absolute terms.

 

In contrast, copper requires a slightly different analysis because resource depletion is such a big issue in the future supply scenario, and the future transition in China to the use of scrap is not as pronounced in copper as it is in the ferrous metal.

 

Companies like BHP Billiton and others with ongoing iron-ore investment programmes need to take into account the reality that supply will in due course meet demand and change the pricing mechanisms and regimes.

 

Longer term, beyond 2025, the combination of a plateau in steel use in China and increasing availability of ferrous scrap is likely to result in a protracted period of low-to-negative growth for the seaborne iron-ore market.

 

Therefore, low-cost seaborne iron-ore will continue to displace higher-cost supply and prices will revert to marginal cash cost.

 

It is thus BHP Billiton’s belief that a window of opportunity is reserved for incumbent iron-ore producers that are low on the cost curve, able to leverage existing development, close and quick to market and have competitive fiscal terms and stability.

 

BHP Billiton is applying those criteria when testing the economics of its iron-ore investments, which means that money will only be allocated to iron-ore opportunities that have the ability to generate superior returns against that backdrop.

 

Copper investment, which has the benefit of the world’s major copper orebodies set to decline over the next decades, is able to take that decline into account as well as the forecast of 3%-a-year underlying growth and a need for copper producers to meet a 5%-a-year growth in production.

 

BHP Billiton’s base-case scenario is that prices over that period of decades will be set at a level high enough to incentivise investment in copper supply.

 

Remaining committed to large, long-life, low-cost upstream assets that are expandable, BHP Billiton currently has 22 projects under way in a sequence that maximises value, minimises risk and balances short-term and long-term returns.

 

All businesses are primed to contribute towards a solid A credit rating and the payment of a progressive dividend.

 

In pursuit of a simple and scalable business, the company continues to exit commodities and operations that fall outside of those two parameters, which the pending sale of BHP Billiton’s interest in Richards Bay Minerals in South Africa currently exemplifies.(Source: Mining Weekly)