BHP Rejects Supply Restraint in Iron After Glasenberg Salvo – by Jasmine Ng, Martin Ritchie and Jesse Riseborough (Bloomberg News – May 14, 2015)

http://www.bloomberg.com/

BHP Billiton Ltd. defended its strategy of expanding iron ore output into an oversupplied market as prices decline, saying that the company’s approach was rational and it wouldn’t countenance cutting back on output.

“Our performance will be dependent on being the most efficient supplier and it shouldn’t be dependent on supply restraint,” Alan Chirgwin, iron ore marketing vice president, told a conference. “We have high-quality resources. We have a management team that’s operating in a very cost-disciplined way. We should be taking advantage of those things.”

Iron ore slumped 40 percent in the past 12 months as BHP and Rio Tinto Group in Australia and Brazil’s Vale SA expanded low-cost output to boost sales volumes and cut costs, spurring a surplus as China slowed. The strategy drew criticism from rivals including Fortescue Metals Group Ltd. and Glencore Plc, which said that the approach damages the industry. It’s also drawn flak from political leaders including Colin Barnett, the premier of Western Australia where BHP and Rio operate mines.

“What we’re doing very clearly is we’re operating our enterprise in a very economically rational way,” Chirgwin said in Singapore on Thursday. “We took action, so it wasn’t just words. In 2011, that’s the last time our board approved billions of dollars of additional investment in expansion.”

BHP Chief Executive Officer Andrew Mackenzie said on Tuesday that lower iron ore prices are here to stay as output outpaces weaker growth in demand. The company aims to cut costs 21 percent at its Western Australian operations to $16 a ton in fiscal 2016, Mackenzie said in a separate statement.

Glasenberg’s Salvo

Glencore Chief Executive Officer Ivan Glasenberg said on the same day that mining is suffering a crisis of confidence, and oversupplying markets regardless of demand is damaging the credibility of the industry.

For the rest of this article, click here: http://www.bloomberg.com/news/articles/2015-05-14/-we-took-action-bhp-stands-ground-in-iron-ore-strategy-battle

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