Iron ore supply may exceed demand growth rates in China later in 2014 as the nation has recorded slow steel production rates since the start of the year and is currently operating at an annualized rate of 730 million mt, BHP Billiton CEO Andrew Mackenzie said in a conference call early Tuesday.
"Chinese steel production is off to quite a slow start and, while we expect there may be a few ups and downs in the next quarter or two, perhaps there's a little bit of recovery in that demand and we still some issues arising from more supply coming on," he said.
"As we look further forward than a quarter or two, our conclusion is that there is more supply coming into the iron ore market than there is demand growth in places like China and elsewhere," he added.
In 2013, iron ore production from Australia's three largest iron ore producers -- BHP Billiton, Rio Tinto and Fortescue Metals Group -- rose by up to 100 million mt/year over the previous year to 580.4 million mt, according to Platts data. BHP alone boosted its iron ore output by 20 million mt to 175 million mt in 2013.
BHP will further increase its production in 2014 and expect to be producing at a rate of 220 million mt/year by the second half of the year.
Mackenzie said the signs are that China's economy is moving toward a greater degree of domestic consumption, and this will reduce the rate of growth for steel.
But Mackenzie believes that China will still hit steel production rates of 1 billion mt/year over the next few years and, if this rate was sustained at this level or higher for several years, then the country would properly industrialize and add the right infrastructure as it moves through the middle-income phase of its development.
"In a decade or so, we would then see a greater amount of that steel on the surface in China being recycled. That would undoubtedly, therefore, hit the demand for pig iron and therefore iron ore and met coal going into China," he said.
BHP Billiton earlier Tuesday posted attributable profit of $8.107 billion for the six months that ended December 31, up 82.9% year on year.
Revenue for the first half of the company's 2013-2014 fiscal year climbed 5.9% year on year to $33.948 billion.
