BHP Billiton President Iron Ore Jimmy Wilson outlined BHP Billiton’s view of the long-term supply and demand trends in the iron ore market. He announced plans to cut unit costs at Western Australia Iron Ore (WAIO) by at least 25% and the potential to increase capacity there by 65 million metric tons per year (mt/y) at a very low capital cost.
“We continue to see healthy demand growth for iron ore in the mid-term as Chinese steel production is expected to increase by approximately 25% to between 1 and 1.1 billion mt in the early to mid-2020s,” he said. “Meanwhile, steel production growth in other emerging economies is outpacing China as those nations urbanize and industrialize. We expect to see a compound annual growth rate for global steel production of between 2.5 and 3% between now and 2030.
“Unsurprisingly, high prices over the last decade created the incentives needed for new entrants to join the market and traditional producers to substantially increase supply. As a result, growth in seaborne supply is expected to exceed growth in demand over the short to medium term.
“In anticipation of this transition, we turned our focus from major supply chain investment to productivity, cost reduction and capital efficient growth more than two years ago.”
Wilson highlighted the quality and footprint of the WAIO operations, which consist of the four main joint ventures Mount Newman, Yandi, Mount Goldsworthy and Jimblebar.
“We have the strongest resource position in Western Australia and the quality of our ore bodies will help us sustain strong margins over the long term. We have already significantly cut the cost of production at WAIO and plan to go further,” he said.
“We expect unit cash costs of less than $20/mt in the medium term, a reduction of more than 25% on the average achieved in the 2014 financial year,” he said. “Our reserves are concentrated around our four major mining hubs, which will support a lower level of sustaining capital expenditure than required by our peers. With annual sustaining capex of approximately $5/mt over the next five years, we aim to be the lowest cost supplier to China on an all-in cash basis.”
Wilson also said BHP Billiton could add 65 million mt of capacity at WAIO at a capital intensity of approximately $30 per annual ton, taking total system capacity from 225 million mt/y to 290 million mt/y by the end of the 2017 financial year.
“The economics of further increasing our production are compelling. We completed our major supply chain investments some time ago and have since focused on using BHP Billiton’s benchmarking systems to improve the performance of our equipment by systematically tackling the bottlenecks,” he said. “We now expect to increase WAIO mine capacity to 275 million mt/y without the need for additional fixed plant investment. Beyond that, the Inner Harbor Debottlenecking and Jimblebar Phase 2 projects will help us to reach 290 million mt/y of supply chain capacity at low capital cost.”