Mining giant BHP Billiton says it’s in good shape to weather steep iron price falls, despite predictions of more pain to come.
Analysts have forecast more falls as the iron ore price fell to $US105 per tonne on Tuesday, with Citi analysts predicting an average price of $US80 in 2016.
Half of BHP’s earnings came from iron ore, but its president of iron ore Jimmy Wilson said the miner was diversified enough to handle price fluctuations and maintain its forecasts.
“We’ll certainly survive this,” Mr Wilson told reporters on the sidelines of an iron ore conference in Perth.
Despite a weak outlook for the steel making ingredient, the world’s largest mining company is still targeting iron ore production of 212 million tonnes per annum in the 2013/14 financial year.
Market watchers have attributed the iron ore price fall to a credit squeeze in China and high iron ore stocks.
But Mr Wilson does not see the current dip as a down cycle amid fluctuations in the market.
“The iron ore price we see going down,” he said.
“The magnitude of that number… $US80 per tonne feels a little low.
“We don’t make forecasts like that.”
He said the price falls would rebound and steady out.
“Our view is the long-term is still very robust,” Mr Wilson said.
“We shouldn’t let today’s price influence our long-term thinking.”
But he conceded the company’s iron ore division had limited protection if Chinese buyers stopped paying for iron ore shipments. BHP protects itself by asking for letters of credit.
“We have assurances around each of the cargoes. We’re reasonably protected,” Mr Wilson said.
In the past BHP Billiton’s customers in Japan and China had continued to pay their bills, with very few defaults, he said.
Lower prices would probably affect BHP much less than some of its peers in Western Australia, he added.
And this year’s global supply of iron ore would exceed demand, Mr Wilson said.
BHP plans to expand its future iron ore output in the Pilbara to 260-70 million tonnes per annum.
Mr Wilson stressed that it would not need to make adjustments to its business if the current iron ore price remained low over the short to medium term.
“Obviously we would keep going hard at cost reduction, but we’re doing that anyway,” he said
Mr Wilson also said on Tuesday that BHP planned to sell its west African iron ore assets.
Meanwhile, Rio Tinto chief executive of iron ore Andrew Harding said his company had maintained its growth targets to achieve 290 million tonnes per annum despite a rapid change in sentiment for iron ore.
“I can’t see any change to forecasts,” Mr Harding said.
Iron ore miner Fortescue Metals Group declined to comment on market forecasts but said there was still strong demand for its products.
“This market isn’t going to disappear,” director of development Peter Meurs said.
