Growth in China steel demand likely to slow in 2015
Iron ore giant BHP Billiton expects Chinese steel consumption growth to slow next year and has already adjusted its strategy to cope with a supply glut that has caused global prices to collapse, executives said.
Iron ore giant BHP Billiton expects Chinese steel consumption growth to slow next year and has already adjusted its strategy to cope with a supply glut that has caused global prices to collapse, executives said.
"We anticipated the change towards current market conditions and the rebalancing of supply and demand after a period of massive expansion and a time when supply struggled with demand. We saw these changes coming a long way off," chief executive Andrew Mackenzie said.
It is a sign that one of the iron ore majors is scaling back expectations after years of bullishness about Chinese demand.
Mackenzie added that BHP had stopped approving new investment in major iron ore production growth as early as 2011.
BHP and other big miners had embarked on a rapid production capacity expansion programme, banking on sustained demand growth in top buyer China.
But though imports into China have surged, prices have fallen nearly half to under US$70 a tonne, with Chinese steel output growth slowing to about 3 per cent.
BHP said that while Chinese production growth was likely to remain at about 3 to 3.5 per cent until 2020, a slowdown in consumption was now anticipated.
"Consumption growth is about 1.5 per cent this year and slowing to between 0.5 and 1.5 per cent next year. We see modest to marginal steel consumption growth," said Alan Chirgwin, general manager and marketing for iron ore.
With iron ore prices at five-year lows, the big miners have expected high-cost Chinese producers to be displaced by cheaper foreign supplies, and imports to China in the first 11 months rose 13.4 per cent to 846 million tonnes.
BHP said more high-cost producers were expected to depart in 2015 as 100 million to 120 million tonnes of new low-cost supplies entered the market, far higher than the estimated demand increase of 30 million to 50 million tonnes.
The company, also a large coal producer, said it did not expect to be affected too much by China's decision to introduce import tariffs.
"We continue to ship every tonne of coal that we produce, so there hasn't been any impact," said marketing president Mike Henry, adding that the recent increase in Chinese domestic prices had negated the impact of the tariffs.
