Reuters

Shanghai

Iron ore giant BHP Billiton  expects Chinese steel consumption growth to slow next year and has already adjusted its strategy to cope with a supply glut that has caused global prices to collapse, executives said.

“We anticipated the change towards current market conditions and the rebalancing of supply and demand after a period of massive expansion and a time when supply struggled with demand, we saw these changes coming a long way off,” Chief Executive Andrew Mackenzie told reporters.

It is a sign that one of the iron ore majors is scaling back expectations after years of bullishness about Chinese demand.

Mackenzie added that BHP had stopped approving new investment in major iron ore production growth as early as 2011.

BHP Billiton and other big miners had embarked on a rapid production capacity expansion programme, banking on sustained demand growth in top buyer China.

But though imports into China have surged, prices have fallen by nearly half to under $70 a tonne, with Chinese steel output growth slowing to around 3%.

BHP Billiton said while Chinese production growth was likely to remain at about 3-3.5% until 2020, a slowdown in consumption was now anticipated.“Consumption growth is about 1.5% this year and slowing to between 0.5-1.5% next year - we see modest to marginal steel consumption growth,” said Alan Chirgwin, general manager and marketing for iron ore.

With iron ore prices at five-year lows, the big miners have expected high-cost Chinese producers to be displaced by cheaper foreign supplies, and imports to China in the first 11 months rose by 13.4% to 846mn tonnes.

Jimmy Wilson, BHP’s president in charge of iron ore, said the equivalent of 80mn tonnes of high-grade domestic ore had been removed from the market since the start of the year, and total Chinese output was likely to fall to 240-250mn tonnes this year, and to 200mn tonnes in the long term.

The firm said more high-cost producers were expected to depart in 2015 as 100-120mn tonnes of new low-cost supplies enter the market, far higher than the estimated demand increase of 30-50mn tonnes.

The firm, also a large coal producer, said it did not expect to be affected too much by China’s decision to introduce import tariffs.

“We continue to ship every tonne of coal that we produce so there hasn’t been any impact,” said Mike Henry, marketing president, adding the recent rise in Chinese domestic prices had negated the impact of the tariffs.