LONDON – (Reuters) – BHP Billiton’s chief executive said its strategy of high-volume iron ore production was the best way to profit in a gloomy market, defending a plan that has come under growing criticism for depressing prices.
Iron ore, the biggest earner for global miner BHP Billiton, has lost about 40 percent of its value this year, reaching five-year lows, as big increases in new supply from top three miners Vale, Rio Tinto and BHP have exceeded lackluster demand.
Analysts expect the price decline to continue in the next few years under the weight of extra supply.
BHP has said it intends to boost production at existing assets by 65 million tonnes to 290 million a year by June 2017 and plans to cut its production costs to overtake rival Rio Tinto as the cheapest iron ore supplier to China.
“The lowest-cost producer has a right to continue to produce at very high margins in a free market,” BHP Chief Executive Andrew Mackenzie told reporters after the company’s annual general meeting in London.
“We have always been of the view that the iron ore market is more likely to decline than rise, and therefore producing the maximum amount we can now is very sensible.”
The big three miners say their low-cost position means they can still profit in a lower price environment and gain market share at the expense of smaller, less efficient, producers, which are fighting for survival.
But critics including analysts and a few shareholders have increasingly said they are concerned the strategy would backfire on the big miners. They say the steep fall in prices may outweigh any benefit from higher volume sales.
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