BHP will seek permission to grow iron ore export capacity by 14 per cent despite believing that Chinese steel production is starting to plateau, in a sign the miner may grow its share of the iron ore market.
BHP is approved to ship 290 million tonnes of iron ore per year from Port Hedland in Western Australia, but the world's third-biggest iron ore producer said on Tuesday it wants that limit raised to 330 million tonnes.
While it is just the start of a multi-year approval process, the plan is the first substantial iron ore growth ambitions that BHP has revealed for six years, having declared in 2014 that the era of massive investment in Australia's most lucrative export industry was over.
It comes as iron ore and gold are the only Australian mining and energy commodities still fetching strong prices amid the pandemic, in a year when Australia is tipped to export a record $101 billion worth of the steelmaking ingredient.
BHP's desire for more iron ore export capacity comes despite its belief that Chinese steel production may peak this year, and despite the miner's belief that iron ore prices are unlikely to retain their current strength.
''Our base case is that Chinese steel production has entered a plateau phase, with the literal peak to occur no later than the middle of this decade. Our low case for China, which underpins our global view on steel-making raw materials, assumes that the peak year is contemporaneous,'' said BHP in February.
''The industry is then assumed to immediately embark upon a multi–decadal decline phase.''
But supply from the world's two biggest iron ore miners, Vale and Rio Tinto, has been much weaker than expected over the past 18 months, and there are growing doubts over Vale's ability to resume its title as the world's biggest exporter in the wake of the catastrophic Brumadinho dam collapse in 2019.
Brazilian regulators are moving slowly on allowing Vale to resume mines that were shuttered in the wake of the dam collapse, and the company's downgraded 2020 production target of between 310 and 330 million tonnes is lower than the 346 million it produced in 2015.
Back in 2014, Vale was promising to produce 459 million tonnes per year by 2019, but those ambitions appear highly unlikely to be realised any time soon.
''While we do not think that the current constraints on Brazilian exports are informative for long run equilibrium pricing, we reiterate that the normalisation process could be a multi-year event,'' said BHP in February.
''The inevitable ups and downs of the path back to a stable and predictable Brazilian export performance can be reasonably expected to generate volatility in pricing.''
Like Vale, BHP, Rio and Gina Rinehart's Roy Hill have all taken longer than expected to reach their export goals.
BHP only won approval to ship 290 million tonnes per year in February 2018, and flagged that it would export at that rate in June 2019.
That disclosure raised hopes that BHP may ship 290 million tonnes in fiscal 2020, but on Tuesday, BHP described 290 million tonnes per year as a "medium term'' goal.
The company will set a new record if it achieves its fiscal 2020 target of shipping between 273 million and 286 million tonnes of iron ore from WA.
While BHP, Rio Tinto and Fortescue are simultaneously spending billions of dollars on new iron ore projects in WA, only a small proportion of that new capacity will deliver export growth; much of the new capacity will simply replace old mines that are soon to retire.
To win approval from WA regulators, BHP will need to convince the local community near Port Hedland that it can control dust pollution from the port, which has become a flashpoint in recent years.
BHP said on Tuesday it would invest $300 million on dust-suppression programs at Port Hedland.
Source: Financial Review