BHP is Cutting Costs
BHP Billiton Ltd [ASX:BHP] is planning to cut costs big-time over the next two years. The mining giant aims to save $2.2 billion, which would mean a 10% cut to unit costs across the board.
Cost-cutting isn’t BHP’s only focus, though. It’s also hoping to bump up production alongside the proposed savings.
Iron ore in particular has been flagged by the miner. BHP wants to bring production rates up to 290 million tonnes a year by the end of 2019. Something the company is already on track to achieve, as noted by BHP Australia president Mike Henry:
‘We’ve put in place the granular plans that get us to 290, and that’s going to be a big achievement in its own right…’
That goal should easily be within the company’s reach. BHP’s WA sites are forecasting 275–280 million tonnes of iron ore next year, provided there are no hiccups along the way.
Iron Ore Prices Not a Concern
And iron prices could be the least of its concerns. BHP says that it expects unit costs to be less than US$14 a tonne next year. Which is well below the market’s current US$67 price. Meaning BHP can likely weather anything short of a catastrophe in iron ore demand.
No End in Sight for Chinese Demand
BHP is confident that Chinese demand isn’t going away in the long run. The company concedes that short-term demand may slip due to policies in China. BHP’s vice-president of marketing Vicky Binns told investors:
‘While steel production in China will fall in the short term due to the mandated winter cuts and this could impact short term demand for iron ore and met coal…record margins means competition for premium quality raw materials is high…’
That high demand is also likely to be boosted by the highly anticipated ‘One Belt, One Road’ initiative. This is a US$1.3 trillion project that BHP expects will require an extra 150 million tonnes of steel.
Similarly, BHP believes China will fuel more demand for copper as well. Especially as the country is set to impose a ban on assembled copper scrap at the end of next year. Which means the Middle Kingdom will need to shore up supplies with more blister, anode and cathode copper.
It seems China’s growth saga still has a few chapters left. Especially for commodities.
Yet BHP isn’t the only miner that’s seeing a windfall from Chinese demand. Check out what we believe are the top 10 mining stocks on the ASX for more great opportunities.
Junior Analyst, Money Morning