HomeBase MetalsBHP may cut iron ore production by 25%

BHP may cut iron ore production by 25%

Iron ore mining
in South Africa
– BHP may cut its
production by
25% in 2009
Sydney, Australia — MININGREVIEW.COM — 08 December 2008 – The world’s largest mining company – BHP Billiton Limited (BHP) – may need to cut iron ore production by about a quarter next year, as a slump in global steel output curbs demand for the raw material.

Bloomberg News quotes Merrill Lynch & Company as saying that BHP – the world’s third-biggest iron ore producer – may curb output from mines in Western Australia by 30 million metric tons amid a slump in prices. The Merrill Lynch analysts – led by Sydney- based Vicky Binns – said in a report here that output this year might be cut by 4 million tonnes.

The global financial crisis has reduced demand for steel, forcing mills in Asia, Europe and North America to slash output, curbing the need for ore. Cia.Vale do Rio Doce and Rio Tinto Group – the world’s two biggest producers of the ore – have already cut output, while BHP has yet to announce a reduction.

“After four very tight years, the iron ore market is now in oversupply on our forecasts, driven there primarily by a collapse in steel production,” Merrill Lynch said, predicting that global iron ore demand would fall 1.1% next year, down from an earlier forecast for a 6.3% gain.

BHP produced 122 million tonnes of iron ore last fiscal year and has flagged plans to boost capacity in Western Australia to 300 million tonnes by 2015. The Melbourne-based company last month approved a US$4.8 billion expansion of its operations in the state, increasing capacity to 205 million tonnes by the second half of the 2011 calendar year.

“The medium- to longer-term outlook for the mining sector is positive, as demand for commodities from China continues, Merrill Lynch said. “If investors can handle the volatility and are prepared to look more long term, then the next three-to-six months will offer great opportunity,” the report concluded.