MELBOURNE (Reuters) - Top global miner BHP Billiton is bearish on the outlook for commodity prices in the long term, but remains bullish on demand growth based on the rise of Asian economies, its chief executive said on Thursday.
“The first thing I would say is we’re relatively bearish about the long term projections for prices,” Chief Executive Andrew Mackenzie said following a speech in Melbourne.
He said the only way to compete in a world where there was ample capacity to meet the needs of countries like China was to keep cutting costs, as BHP and its rivals are doing, which means prices will keep coming down.
“That is the spirit of competition that we play in,” he said.
“But, yes, I am optimistic about the long term growth in demand, because I know the kind of resources it requires to push three, four billion people into the middle classes, particularly in Asia, and the kind of consumption that will come from that.”
While iron ore prices have slumped to decade lows as steel mills in China, the world’s biggest producer and user of steel, battle a downturn, Mackenzie questioned forecasts by Chinese steel makers that production would stabilize around 500 or 600 million tonnes a year.
BHP and the world’s other mega-producers of iron ore still expect Chinese steel production to peak around 1 billion tonnes in the next decade.
“I think China will be producing a lot more steel than the 600 million tonnes a year that you’re talking about, and some for a while,” he said in response to a question after his speech at a University of Melbourne function.
“We shouldn’t forget that China is turning out to be a much more effective exporter of its steel products than many people thought.”
China’s steel consumption per head would need to roughly double to get to the typical point where an economy is self-sustaining in steel through recycling.
“If China really wants to get along a path towards full development, it does have to get on with further construction of a number of things, including machinery and cars, and that will require more steel to be produced,” Mackenzie said.
He said he would “nudge his bearishness up a bit” if China took a long time to push ahead with that construction.
Reporting by Sonali Paul; editing by Susan Thomas