BHP iron ore output up, China worries clip shares

Tue Jul 17, 2012 9:21pm EDT
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By Sonali Paul

MELBOURNE (Reuters) - BHP Billiton (BHP.AX: Quote)(BLT.L: Quote) posted strong growth in iron ore production in the June quarter and said it expects to lift Australian iron ore output by 5 percent in the 2013 financial year, despite risks of cooling demand in top customer China.

With Australia's top three iron ore producers, Rio Tinto (RIO.AX: Quote), BHP and Fortescue Metals Group (FMG.AX: Quote), busy expanding output, worries are growing over a profit squeeze with iron ore prices down around a quarter from a year ago as Chinese steel mills cut stocks.

"Investors are going to place increased attention on the ability of the market to absorb supply increases, particularly at a time when profitability in the steel industry is negligible," said Tim Schroeders, a portfolio manager at Pengana Capital, which owns shares in BHP and Rio Tinto.

BHP's shares fell 0.8 percent in early trade, though held up better than Rio Tinto and Fortescue, which are more heavily exposed to iron ore.

BHP reported on Wednesday a 15 percent rise in iron ore output to 40.9 million tonnes in the quarter from a year earlier, taking it to a record annual output of 159 million tonnes.

Thanks to the expansion of railway lines and the addition of new ship loading capacity, BHP was producing at a rate of 179 million tonnes a year in the June quarter, as it ramps up to reach a target rate of 220 million tonnes a year in 2014.

BHP, the world's no.3 iron ore miner behind Brazil's Vale (VALE5.SA: Quote) and Rio Tinto, is due to decide by December whether to go ahead with the first stage of what could eventually be a $20 billion expansion to nearly double its iron ore capacity in Western Australia beyond 2014.

The ambitious plans come as spot iron ore prices .IO62-CNI=SI dropped half a percent to $129.40 a tonne on Wednesday, the lowest since November, as weak Chinese steel demand pressured steel prices, curbing appetite for the raw material.   Continued...

A man walks past the head office of BHP Billiton in central Melbourne October 18, 2010. REUTERS/Mick Tsikas