By Rhiannon Hoyle
SYDNEY-- BHP Billiton Ltd. is digging up more iron ore than
anticipated as it works its Australian mines harder, a push that
will likely fan fears of a deepening oversupply of the raw
material.
The value of the steelmaking ingredient has plummeted more than
60% since the start of last year, to decade lows, as miners
including BHP and Rio Tinto PLC increased output from their mines
in Australia's iron-rich Pilbara region. Analysts say the seaborne
market, largely in balance until this year, is facing a ballooning
glut that will take years to clear.
BHP said it produced 59.0 million metric tons of iron ore in the
three months through March, up one-fifth on the same period a year
earlier and 5% on the quarter immediately prior. As a result, the
Anglo-Australian resources giant lifted its output forecast for the
year through June, saying it now expects to record group production
of 230 million tons, 2% more than previously anticipated.
That comes just a day after Rio Tinto signaled it would have to
accelerate production in the coming months to compensate for
weaker-than-expected shipments in the same quarter through March.
Rio Tinto's sales were hampered by heavy rains during a tropical
cyclone, and a train derailment.
BMO Capital Markets said Rio's need to ramp-up output to meet
its full-year targets was a "red flag" for an already oversupplied
iron-ore market.
Analysts worry the seaborne market will be saturated by another
wave of new supply in the months ahead, including billionaire Gina
Rinehart's new 55-million-ton-a-year Roy Hill mine in the
Pilbara.
"The bottom line is the market is in surplus," said Mark Pervan,
Melbourne-based analyst for Australia and New Zealand Banking
Group. "In our view, there is now further pressure on prices in the
near term," he said Wednesday.
Rio Tinto is the world's second-largest exporter of iron ore,
after Brazil's Vale SA. BHP is the third largest.
Unlike its rival, BHP said it was little affected by wet weather
in the region early in 2015. And a campaign to get more out of its
existing operations through productivity improvements, such as
turning around trucks and trains faster, had been more fruitful
than anticipated.
"The potential of our installed infrastructure continues to
exceed expectations," BHP said in its quarterly operational
report.
BHP operates a vast network of iron-ore mines, railway and port
terminals in Australia's remote northwest, and has iron-ore
interests in Brazil.
Its productivity push has been so successful, it says, the miner
has deferred a project designed to improve its infrastructure at
Port Hedland, the world's largest iron-ore export hub. The miner
indicated it may try to reach its targeted production rate of 290
million tons without the project, which would reduce costs.
BHP has repeatedly defended its iron-ore production increases,
despite the rapid downturn in prices.
"Despite the subsequent increase in supply-side competition,
these low-cost expansions continue to deliver attractive margins
and returns through the cycle," Chief Executive Andrew Mackenzie
said in the report.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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