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China Steel Surge has Peaked, Says BHP CEO Kloppers

Oct. 17, 2012
'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.'

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.

Upbeat on Global Iron Ore Market

However, he remained upbeat on the mining industry's broader outlook, with the global iron ore market set to grow by 650 million metric ton by 2020 -- down from 800 million metric tons between 2000-2010 but still "significant."

"At the same time the progressive transition into a consumption-based economy implies increased demand for commodities other than steel, such as copper, energy, aluminium and so on," added Kloppers.

"As the middle class continues to grow, better diets will also imply a higher demand for commodities such as potash."

Melbourne-based BHP reported a 24% jump in quarterly copper output from the September quarter last year, reflected by higher grade ore at its Escondida mine in Chile and record quarterly production at Antamina in Peru.

There was a significant bounce in petroleum products -- which Kloppers said was key to BHP's resilience -- up 19% from the previous corresponding period, including a 30% surge in gas output.

Zinc production was up 11% from the previous September quarter, uranium up 4%, silver production was steady while lead output dropped 6%.

Copyright Agence France-Presse, 2012

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