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June 5, 2014 11:13 pm
BHP Billiton was counting on Chinese demand for energy and fertiliser to take up the slack as the steel sector softened, its chief executive said in Beijing as he wound up a visit to the company’s largest Asian customers.
The Anglo-Australian mining group spent the past few years ramping up iron ore output only to see steel demand growth slow. This week, it cut jobs at its iron ore division.
So far imported Australian ore has gained market share in China, as falling prices forced higher-cost mines elsewhere to shut.
However, BHP and its chief rivals Rio Tinto and Vale all spent freely to keep up with demand from Chinese mills over the past decade, and are now starting up mines just as prices have fallen by a third since the start of the year.
“We’re adding low-cost supply quicker than demand is increasing,” said Andrew Mackenzie, the Glaswegian geologist who was appointed chief of BHP 15 months ago.
Demand for coal, on the other hand, will probably remain strong despite policies favouring other fuels. Coal currently fuels about 67 per cent of China’s power generation, a share that Beijing expects to slip to 65 per cent by 2017.
That modest target still requires the construction of about three new coal-fired power plants in China every month until 2020.
“We probably need more coal, not less,” Mr Mackenzie said.
He added that sales of natural gas and uranium from Australia would benefit from China’s attempts to shift towards energy sources that cause less air pollution. The company sent its first direct shipment of uranium to China last year.
The company could adjust output at its Olympic Dam in Australia depending on when China’s ambitious expansion of nuclear generating capacity revives the uranium market, which is still depressed by the aftermath of the meltdown of the Fukushima reactor in Japan.
Mr Mackenzie’s division pulled the plug on a long-delayed expansion of Olympic Dam the year after a tsunami devastated the Fukushima plant.
Another of Mr Mackenzie’s early decisions was to hedge his bets on potash, a fertiliser. Last year, BHP said it would delay production at its $14bn Jansen potash project in Canada to 2020, but continue to develop the mine rather than quit the industry altogether.
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