Global miner BHP Billiton does not expect the current revival in iron ore prices to last long.
BHP’s president of mining operations in Australia, Mike Henry, says stronger prices may last for a few months but then retreat again.
Mr Henry told the Melbourne Mining Club on Thursday that there is still lots of low-cost iron ore to work its way through the market.
The price of iron ore has lifted about 50 per cent in the past three months to more than $US60 per metric tonne.
Mr Henry said there has been a lift in demand for steel in the Chinese construction industry, which had helped boost iron ore prices, but that was partly seasonal and followed a period when stocks of steel and commodities had run down to a very low level.
So as the construction industry lifted, there had been an improvement in demand for steel, higher steel margins, and more demand for commodities such as iron ore, which had pushed prices higher.
“But as we’ve said many times before, there’s lots more low-cost volume to come to market,” Mr Henry said.
“We think that there is a slowing in growth for steel demand and steel production in China that means that over time we’re not forecasting that we’re going to see the sorts of prices we’ve seen for iron ore or coking coal for that matter.
“So I think we’re going to see this curve (price rise) for a few months but things will come back off again.”
Mr Henry told reporters that even if China reduced its steel-making capacity, it wouldn’t stop iron ore prices from coming down because remaining steelmakers would become more efficient.
“There is simply too much potential there to bring more low-cost supply to market either through productivity or new investments,” Mr Henry said.
Nonetheless, Mr Henry added, if BHP Billiton has its cost structure right, it will still have a fantastic business generating healthy margins.
He said BHP would be driving hard to improve productivity irrespective of what was happening with prices or the value of the Australian dollar.