Merrill Lynch & Co said that BHP Billiton Limited may need to cut iron ore production by about a quarter in 2009 as a slump in global steel output curbs demand for the raw material.
Merrill Lynch analysts led by Mr Vicky Binns said that BHPB may curb output from mines in Western Australia by 30 million tonnes amid a slump in prices. Output in 2008 may be cut by 4 million tonnes.
It may be noted that 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 have already cut output, while BHP has yet to announce a reduction.
Merrill said that "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."
BHP produced 122 million tonnes of iron ore last fiscal year and has flagged plans to boost capacity in Western Australia to 300 million tonnes by 2015. It last month approved a USD 4.8 billion expansion of its operations in the state, increasing capacity to 205 million tonnes by the second half of the 2011 calendar year.
Macquarie Group Limited analysts said that BHPB may cut output of iron ore from its mines in Western Australia by 17% in 2008. It said last month that customers had requested a deferral of iron ore shipments equal to 5% of its budget for 2008.