BHP Billiton Ltd. delivered a sombre warning to global commodity markets that oversupply is very much here to stay. Tumbling prices are creating a testing environment for commodity producers, while demand is slowing to more routine levels amid a transition in China’s economy away from investment-led growth, the world’s biggest mining company’s Chief Executive Officer Andrew Mackenzie said Wednesday.
“In many markets, recently installed low-cost supply can now be stretched to meet growing demand,” Mackenzie said in a speech in Canberra. “Incremental supply, induced during periods of higher prices, will take longer to absorb and this means over-supply may persist for some time.”
Expansion by the biggest iron ore producers, including BHP and Vale SA, will see a global surplus swell to 215 million tons in 2018 from 45 million this year, UBS Group AG estimates. Teck Resources Ltd. plans to idle six Canadian coal operations amid a slump in prices and demand.
“The speed at which prices have returned to long run levels for each commodity has varied as a function of the time taken for low cost supply to come to market,” Mackenzie said.
BHP sees the iron ore and metallurgical coal markets as well supplied and won’t allocate significant new investment to the sectors, Mackenzie said last month.
Efforts by thermal and metallurgical coal producers to scale back planned export growth mean prices will probably rise before iron ore, according to Melbourne-based Morgan Stanley analyst Joel Crane.
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