BHP boosts Australian iron ore sales target

Australian resources firm BHP has increased its medium-term Western Australian iron ore (WAIO) export target to over 300mn t/yr from 290mn t/yr on a 100pc basis and is studying plans to grow to 330mn t/yr.

BHP's position as the lowest-cost major iron ore producer in the world and WAIO's ability to deliver continuous growth has given chief executive Mike Henry confidence to raise the medium-term outlook to over 300mn t/yr through productivity efforts and a little bit of debottlenecking. It maintained its target of 278mn-290mn t for 2022-23, which was in line with its 2021-22 guidance.

The move to 330mn t/yr, which has all approvals in place, will require investment in new mines and further debottlenecking of the port, but no further upgrade to rail. This spending will have to compete with other internal and external growth options in potash, nickel and copper for investment dollars, Henry added.

"I'm pretty confident the studies will show that there will be some pretty capital efficient ways to get to 330mn t/yr," Henry said.

WAIO reported earnings before interest and tax of $19.67bn in the fiscal year to 30 June 2022, down from $24.31bn the prior year, largely because of lower received prices, as well as higher costs. It was still the largest contributor to BHP's annual profit from ongoing operations of $22.4bn, up from $13.7bn a year earlier, but may not have the growth potential of potash, nickel and copper.

BHP thinks that Chinese demand for steel will remain strong this year despite the immediate economic headwinds, but will decline towards the back end of this decade which, combined with increased use of scrap in steelmaking, will reduce demand for iron ore. It also expects iron ore prices to revert to the marginal cost of supply, rather than the elevated levels over the past couple of years. It will focus on maintaining its low-cost position and improving the quality of its ore, which could influence its appetite to expand to 330mn t/yr.

WAIO cash costs rose to $16.81/t fob Port Hedland in 2021-22 from $14.82/t a year earlier. It expects costs to rise to $18-19/t in 2022-23, before reverting back to below $17/t in the medium term. BHP argues that widespread inflationary pressures are lifting and steepening cost curves, which have moved the marginal cost of production higher, improving the long-term returns of low-cost producers like WAIO.

The Argus ICX iron ore was last assessed at $104.80/dmt cfr Qingdao on a 62pc Fe basis on 15 August, down from $160.30/dmt on 8 March and from a high of $235.55/dmt on 12 May 2021.

By Jo Clarke

Iron ore prices $/dmt