BHP Cuts China Steel Forecast to 1 Billion Tons

 BHP Cuts China Steel Forecast to 1 Billion Tons

Steel production in China will peak at less than 1 billion metric tons as the world’s biggest producer accelerates its transition to a consumer-driven economy, according to a new forecast from BHP Billiton Ltd.
Production will peak at between 935 million and 985 million tons in the middle of next decade, the Melbourne-based company said Tuesday, when reporting profit plunged 52 percent. The prediction is as much as 15 percent less than its May estimate that output would peak between 1 billion and 1.1 billion tons in the mid-2020s.
The revision by BHP, the world’s biggest miner, contrasts with rival Rio Tinto Group whose most recent forecast is that China will produce 1 billion tons of steel by 2030. The largest mining companies have been wrong-footed on slower growth in China, Glencore Plc Chief Executive Officer Ivan Glasenberg said last week, with demand getting tricky to call.
“Our most recent analysis suggested a slight reduction from what we previously spoke about,” BHP CEO Andrew Mackenzie told reporters on a media call Tuesday. “That’s really because the Chinese as we expected are managing the move from investment to consumption I think very sensibly.”
Mining companies are confronting a commodities slump that’s hurting profits and shares amid concern that China’s deepening slowdown will undermine demand and exacerbate supply gluts from crude oil to iron ore. Chinese steel production declined 1.3 percent in the first half for this year, triggered largely by a slowing construction sector, BHP said.

Lower But Longer

“Most people in the market will tell you that China’s steel production and demand have peaked” Xu Huimin, an analyst at Huatai Great Wall Futures Co. in Shanghai, said by phone. “Mining companies are usually the most optimistic about demand conditions. For them to start cutting back outlook just reaffirms that the slowdown in China is worsening.”
The price of iron ore lost 40 percent in the past 12 months as BHP, Rio and Vale SA expanded low-cost output, seeking to boost sales volumes and cut costs, just as demand from China faltered.
Ore with 62 percent content sank 5 percent to $53.28 a dry ton on Monday, a four-week low, according to Metal Bulletin Ltd. The commodity, used to make steel, bottomed at $44.59 on July 8, a record in data going back to May 2009.
“We expect moderate but sustainable growth in Chinese steel production over the next decade,” BHP said in the earnings statement. “An extended view on the life cycle of steel usage has resulted in a lower but longer plateau for crude steel production.”

Exports Soar

After decades of rapid growth spurred an unprecedented expansion in steel production, China’s now grappling with excess capacity as a property-led slowdown crimps demand. Weaker domestic consumption prompted mills to seek overseas buyers, sending exports 27 percent higher to 62.13 million tons in the first seven months.
Although China’s steel shipments are at an all-time high, BHP expects subdued crude steel production growth over the remainder of 2015, with some upside potential should the construction sector recover.
About 100 million tons of low-cost iron ore supply will be added this year, outpacing demand growth and forcing less competitive miners both within and outside of China to close, according to BHP.
“We don’t find China impossible to read,” Mackenzie said. “We’ve been at this game for decades and I think, by and large, we’ve made forecasts about the development of China and we’ve made very sound business decisions off those forecasts that have proved to be correct.”