BHP Says Pace of China Iron Ore Demand Has Slowed by Half - Bloomberg

By Elisabeth Behrmann - 2012-09-19T05:51:27Z

BHP Billiton Ltd. (BHP), the world’s biggest mining company, said the pace of iron ore demand from China, the biggest importer, has slowed by more than half.

“We’re already seeing the beginning of the end of the first phase of economic development in China,” Alberto Calderon, the Melbourne-based company’s chief commercial officer and manager of its aluminum and nickel business, said today at a conference in Canberra. “The pace of demand of iron ore from China has slowed down by more than half.”

Australia, the world’s biggest iron ore exporter, yesterday cut its price forecasts for this and next year on concern that a slowing economy in China will curb demand growth. BHP last month delayed an estimated $68 billion of projects, including an iron ore port expansion, as commodity prices declined.

“What we have seen in the past ten years is not only a function of massive demand coming from China but the industry not being prepared,” Calderon said. “This won’t be repeated. Margins will still be good but that scarcity pricing we won’t see again, on average.”

BHP rose 0.6 percent to A$34.17 at 3:39 p.m. in Sydney trading, while the benchmark S&P/ASX 200 Index gained 0.5 percent.

Iron Ore Volatile

Iron ore, used to make steel, fell to its lowest level in almost three years this month, having reached a record $191.90 a metric ton on Feb. 16 last year. Prices have since rebounded 26 percent to trade at $109.60 a ton yesterday. The fall in the iron ore price forced BHP competitor Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest exporter, to restructure its debt earlier this week.

“Demand will grow less, although still quite impressively and the producers, in general, are more prepared,” said Calderon. “This doesn’t mean that the boom has ended, but it does mean to expect that prices will grow or even stay at very high levels, you would do it at your own peril.”

Calderon said demand growth for seaborne iron ore will probably be low, or could contract, for a protracted period from the middle of the next decade as more steel scrap is used for new construction in China.

Copper Strong

Copper prices will probably remain high as supply struggles to keep pace with demand, Calderon said. The market needs one new Escondida mine a year to replace mined material and as old mines struggle with falling ore grades, he said. BHP is operator of Chile’s Escondida, the world’s biggest copper mine.

BHP had been due to decide this year on approving the expansion of its Olympic Dam mine, an iron-ore port expansion in Western Australia and a potash project in Canada. The three projects may cost a combined $68 billion to build, according to a May 23 estimate from Deutsche Bank AG.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net