* BHP says to lift iron ore output 5 pct this year after
flat Sept qtr
* Sees room to grow despite waning China market
* Posts 24 pct rise in copper
* Escondida copper mine heading for 20 pct boost
By James Regan
SYDNEY, Oct 17 BHP Billiton is
forging ahead with plans to boost iron ore output as low cost
mining giants carve out a larger market share and undercut
competitors struggling with slower growth from top buyer China.
The world's biggest miner joined rivals Rio Tinto
and Fortescue Metals Group in pressing
on with plans to dig up more ore despite risks stemming from
cooling industrial activity and demand for steel in China.
Miners have in recent months been scaling back expansions
and spending, raising concerns a decade-long mining boom in
Australia is dead.
Iron ore prices have rebounded to around $114 per tonne from
$87 in September thanks mainly to Chinese steel mills restocking
depleted inventories. That's still well under the near-$200 a
tonne ore fetched in early 2011.
"(The) commodity price boom is over and no one can deny it.
We've now moved to the next phase of the cycle, which is an
absolute focus on capacity and cost structures," Australia's
resources minister, Martin Ferguson, told Reuters in an
In its September-quarter activities report, BHP outlined
plans to boost output by 5 percent by the end of June 2013,
relying on the higher tonnages to reduce costs and cushion the
impact of lower selling prices.
Over the past decade China has replaced Japan as BHP's
biggest customer, particularly for iron ore, which can be mined
more cheaply in Australia than at home.
Some 100 million tonnes of low-quality Chinese production
had become unprofitable in the past month or two and ripe for
closure, making room for more imported ore, even in a falling
market, mining executives estimate.
BHP and Rio Tinto are not alone in racing to fill the
Chinese gap. In Australia, Fortescue, Atlas Iron and BC
Iron are also boosting production, though they face
BHP and Rio boast some of the world's lowest production
costs of around $20-$30 per tonne. That provides a strong
competitive advantage against domestic Chinese production, which
can run as high as $100 per tonne.
Official Chinese data shows between January and August,
Australian iron ore imports to China rose 20 percent to 222.7
Australian miners are also benefiting from restrictions on
iron ore exports from India, which is attempting to keep its own
steel industry well stocked with raw materials.
A shift away from once-a-year pricing of ore in favour of
shorter term contracts two years ago is also now delivering
lower returns on sales of more ore.
That's because the more ore is sold at spot, the less
smaller suppliers can compete with the mega-producers -- namely
Vale, Rio Tinto and BHP who enjoy vast economies of
scale and together control more than 70 percent of the global
BHP reported steady September quarter iron ore production of
39.8 million tonnes.
COUNTING ON DEMAND
"The producers are obviously counting on demand remaining
up," said Fat Prophets mining analyst David Lennox. "But the
risk is if the pace of the slowdown in China GDP accelerates,
creating less need."
Rio Tinto on Tuesday said it was sticking with its 2012
production target of 250 million tonnes after reporting
September quarter output rose 5.6 percent from a year ago.
Fortescue, which also runs mines in the Pilbara area of
Australia's northwest, plans to decide by December whether to
restart work on its Kings mine, which could nearly double its
output in two years.
But the outlook is uncertain as China's annual economic
growth probably slowed for a seventh straight quarter in the
July-September period to the weakest since the depths of the
global financial crisis, a Reuters poll showed. China releases
its GDP figure on Thursday.
COPPER OUTPUT UP
Outside of iron ore, BHP said its strategy of wide
diversification in commodities was paying off.
"The release of latent capacity and robust operating
performance across our diversified portfolio continues to
underpin strong growth in our high margin businesses," it said.
BHP, the world's No.2 copper producer, said copper production
in the quarter rose 24 percent from a year ago, with its
majority-owned Escondida mine in Chile headed for a 20 percent
production increase in fiscal 2013.
Also, coal output rose by 20 percent during the September
2012 quarter at its collieries jointly owned with Mitsubishi
Citi in a note said BHP's production data was in line with
its estimates and maintained a buy recommendation on the stock,
targeting A$36 a share. BHP was up 1.3 percent at A$33.49 at
That doesn't mean big miners won't feel the pinch.
Citi estimates BHP's net profit will tumble to $12.8 billion
in fiscal 2013 from $17.1 billion the previous year.