BHP may need to cut ore: report

By Jesse Riseborough  |   2008-12-8  |     NEWSPAPER EDITION

BHP Billiton Ltd, the world's largest mining company, 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, Merrill Lynch & Co said yesterday.

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, Merrill Lynch analysts said in a report issued yesterday. Output this year may be cut by 4 million tons, the report said.

But the medium to longer-term outlook for the mining sector was positive as demand for commodities from China continued, the report 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 Merrill Lynch report said.

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 ore producers, have already cut output, while BHP has yet to announce a reduction.

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"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," the report said.

Global iron ore demand will fall 1.1 percent next year, down from an earlier forecast for a 6.3-percent gain, Bloomberg News said.

BHP produced 122 million tons of iron ore last fiscal year and has flagged plans to boost capacity in Western Australia to 300 million tons 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 tons by the second half of 2011. Contract prices for iron ore may decline 20 percent, to about US$73 a ton for benchmark Australian ore in the year starting April 1, Merrill Lynch said.