BHP Billiton still expects China’s steel production to continue to grow despite almost all other forecasters and the Chinese industry itself saying peak production has already passed.
BHP chief commodities forecaster Huw McKay acknowledges Chinese steel production has fallen in recent times, with most analysts forecasting output will hover at 800-830 million tonnes a year.
“We’re not convinced,’’ Mr McKay wrote in BHP’s corporate blog, Prospects.
“We expect Chinese demand will rise modestly over the next decade.’’
BHP has conceded ground to the herd in the past, reining in its previous forecast that China’s steel production would rise to 1-1.1 billion tonnes in the mid-2020s to 935-985 million tonnes.
“This requires a very modest compound annual growth rate of a little over 1 per cent a year, which is roughly half of the global figure we project for the same period. However, the composition of demand means there’s likely to be notable cyclic volatility around the underlying trend,’’ Mr McKay said.
“We think it’s far too soon to write obituaries for growth in Chinese steel production,’’ he said.
Earlier this week the head of China’s top planning body for its metals industries, Li Xinchuang, told The Australian that the country’s steel production had already peaked in 2014.
The 135-155 million tonne a year difference between BHP’s steadfast call and the broader consensus has implications for the future pricing of iron ore, Australia’s biggest export earner. If BHP is right, China would require an additional 200-232 million tonnes of iron ore annually.
If it is wrong, the seaborne market iron ore is headed for long-term oversupply — a situation that is reflected in consensus expectations among analysts that iron ore will continue to retreat from its high for the year of $US68.70 a tonne in April.
Iron ore was most recently quoted at $US56.20 a tonne after a $US1.30 a tonne or 2.3 per cent fall on Tuesday.
Mr McKay said that the rate of urbanisation in China had slowed and would continue to do so.
“Even so, over the next 20 years, China’s urban population is likely to increase by almost another quarter of a billion people, and the rising middle class will be looking to upgrade to bigger and better apartments, sitting above more extensive underground car parks — meaning what’s built (and renovated) will be more steel-intensive,’’ he said.
Meanwhile the much-vaunted March agreement between Fortescue and Brazil’s Vale to form an ore blending joint venture continues to struggle to gain traction.
Vale’s iron ore boss Peter Poppinga told Bloomberg that discussions were taking much longer than expected.
“You won’t see anything happening in 2016,” he said. Fortescue shares fell 8c or 1.7 per cent yesterday to $4.66 in response to the iron ore price fall rather than any disappointment with the slow progress on the Vale joint venture.