BHP Billiton’s admission that growth in Chinese demand for iron ore was flattening helped send both the Australian dollar and share market south.
Growth in Chinese demand for iron ore had in recent years been in double digits but would slip into single digits “if it’s not already there”, BHP Billiton Iron Ore president Ian Ashby told reporters on the sidelines of a business conference in Perth on Tuesday.
CMC Markets sales trader Ben Taylor said Australia was very sensitive to any drop in imports from its greatest iron ore customer.
“Lower demand will most probably equate to a slowdown of Australian mining projects and have negative impacts on our terms of trade.”
The broader market finished 0.3 per cent weaker, as did shares in Rio Tinto, which is more dependent on iron ore than BHP Billiton.
BHP Billiton closed 0.11 per cent softer.
BHP Billiton chairman Jacques Nasser recently told select investors that the company was re-evaluating its big spending plans amid a more cautious outlook for commodities demand.
However, Mr Ashby on Tuesday indicated that the company hadn’t made any decision yet but was poised to respond to slowing customer needs.
“We haven’t slowed down any of the work that allows us to make a decision,” Mr Ashby said.
Citigroup director of commodities Daniel Hynes told delegates that there were growing signs of a slow down in China despite positive gross domestic product and purchasing managers’ index readings.
Mr Hynes said demand for iron ore appeared weak, given Chinese steel production slumped late last year and had only since rebounded mildly.
Mr Ashby did his best to downplay concerns about a slowdown in China’s economy, saying he was confident the Asian superpower would meet its five-year economic growth targets.
“The pie is big and they are still growing their steel industry,” he said.
Mr Ashby said he expected China’s steel production capacity would rise by more than 30 per cent to as much as 1.1 billion tonnes (Bt) by 2025, up from about 700 million tonnes (Mt) currently.
Rio Tinto’s head of expansion projects David Joyce said the miner was confident of a soft landing in China.
Mr Joyce said the world’s iron ore mines needed to produce an extra 100Mt annually to meet Chinese demand in the next seven years, with Rio Tinto expected to capture at least 25 per cent of the market for that extra output.
Global annual iron ore production currently stands around 1.3Bt, with about 450Mt of that coming from China’s domestic mines. Mr Joyce and Mr Ashby agreed that supply was still struggling to keep up with demand because some of the smaller iron ore miners were not achieving their aspirations.
Mr Ashby would not comment specifically on the outlook for the iron ore price, but said there was a floor at $US120 per tonne, compared to about $US145/t currently, based on the cost of Chinese domestic iron ore production.
