China Steel Surge has Peaked, Says BHP CEO Kloppers

BHP Billiton Chief Marius Kloppers said Wednesday that China's steel surge had peaked, and iron ore and steel growth was likely to decline, as the miner delivered a mixed quarterly production report.

BHP Billiton (IW 1000/50) produced 39.77 million metric tons of iron ore in the three months to Sept. 30 -- just 1% higher than a year earlier and 3% lower than the preceding quarter as China's slowdown hit commodities.

Metallurgical coal, another key steel-making ingredient, was down 4% on-year at 8.94 million metric tons.

Kloppers said the China steel boom had peaked, with supply shortages all but met and the Asian giant entering a new phase in its modernization that would see average annual growth of around 8% for the next decade.

"Steel intensity per unit of GDP will continue to moderate and growth rates for iron ore and coal are likely to decrease," Kloppers said in a speech after the release of BHP's September quarter production report.

"The record prices we experienced over the past decade, driven by the demand shock, will not be there to support returns over the next 10 years," he added.

"What we can instead expect is demand growth at more predictable and sustainable levels and more moderated pricing.”

As a result Kloppers said it was "difficult to envisage" further investment in its Australian coal operations, where recent increases in state government royalties and a bullish exchange rate have compounded profitability issues.

BHP suspended some Australian coal projects and put expansion plans on hold this year as falling commodity prices saw its annual net profit dive 35% to US$15.42 billion. Other major miners have taken similar steps.

"While our resource base in Queensland [state] is very high quality, the heavy cost of taxes, royalties, declining productivity and a strong Australian dollar means that further investment to grow these operations is much less likely," Kloppers said.