Steel glut to hit demand for raw materials: BHP

SYDNEY (Reuters) - BHP Billiton, the world's biggest miner, on Wednesday signaled a looming slowdown in global steel-making raw materials markets due to overproduction of steel.

"With global steel production running ahead of real demand in the quarter ended June 2010, we expect output to soften from the record highs achieved in April this year," BHP said.

"This will impact near-term demand for steel-making raw materials. However, the fundamentals remain strong in those commodities, particularly iron ore, where there is a lack of low cost supply response expected over the next one to two years," the world No. 3 producer of iron ore said.

BHP, which has made a $39 billion hostile bid for top global fertilizer maker Potash Corp to further diversify, also reported a 47 percent rise in second-half profit.

"There's strength in their diversity and that's their safety -- it used to be iron ore and then petroleum and then base metals but these days it is all about iron ore and base metals," said DJ Carmichael & Co mining analyst James Wilson.

Each $1 a tonne change in iron ore prices over 12 months adds or subtracts $85 million from BHP's bottom line.

BHP Chief Executive Marius Kloppers later told reporters China's coal and iron ore miners would be among the first to feel the brunt of a drop in demand for steel-making additives, given the country's high production costs .

Iron ore spot prices in China fell on Wednesday as demand for the steel-making raw material remained sluggish in the world's top consumer amid abundant steel supplies.

Imported ore with 63.5 percent iron content was quoted at around $155 per tonne, cost and freight, down from $157 on Tuesday, according to Chinese consultant Mysteel.

No. 3 Australian iron ore miner Fortescue Metals Group this month warned iron ore miners need to brace for a drop in iron ore prices to around $100 a tonne.

(Editing by Michael Urquhart)