"The base business we built is going to be a strong bedrock for decades to come.": BHP chief Andrew Mackenzie. Photo: Bloomberg
BHP Billiton expanded iron ore production too rapidly, causing the Anglo-Australian miner to overlook the underlying growth of its overall business, its chief executive said.
However, Andrew Mackenzie said that despite the iron ore market facing temporary overcapacity, there was enough demand coming back from China and elsewhere to justify the firm's capacity increase.
"We don't quite see the case for the scale of investment we saw in last 10 years ... But the base business we built is going to be a strong bedrock for decades to come," Mackenzie told reporters in Beijing on Thursday.
Global miners, including BHP, Anglo-Australian rival Rio Tinto and Brazil's Vale, have all banked on a sustained increase in iron ore demand from China, ramping up capacity and boosting available seaborne supplies.
But a slowdown in China's economic growth to its weakest in 23 years, which has coincided with a surge in new iron ore supplies, has sparked warnings of a global oversupply and long-term depressed prices.
‘Very strongly competitive’ if prices fall still lower
BHP, the world's third-biggest producer of the steelmaking raw material behind Vale and Rio Tinto, is on track to raise its total annual production to 260-270 million tonnes, up from a planned 217 million tonnes in 2014.
While the glut has caused iron ore prices to drop nearly 30 per cent this year to their lowest since September 2012, Mackenzie said BHP's low production costs would make it easier for the firm to weather any downturn.
"We are very strongly competitive at prices much lower than today's prices," he said.
On China, the world's top iron ore consumer, Mackenzie said a crackdown on pollution has forced local steel mills to turn to higher quality material from Australia at the expense of poorer-grade supplies from domestic mines and elsewhere.
Chinese imports of iron ore have surged 20.65 per cent in the first four months of the year to 305.3 million tonnes, and Australian producers have been the main beneficiary, with shipments up 35.4 per cent.
Australia's share of China's total imports rose to 54 per cent over the period, up from 50.9 per cent for the whole of 2013.
As China's economy shifts away from an investment-led expansion, Mackenzie said BHP was looking at new areas to benefit from the changes, such as growing its potash and energy business.
BHP is still looking to simplify its portfolio by selling some assets and has no plans for acquisitions, Mackenzie said, adding it was still looking to sell its Nickel West asset in Australia, which analysts at Deutsche Bank have valued at $US459 million.
The company has lumped Nickel West with two other unwanted businesses, aluminium and manganese, and flagged earlier this year that one option would be to spin off all three into a separate company.