BHP Billiton expects iron ore prices to stay strong

Melbourne, Australia --- MININGREVIEW.COM --- 21 February 2011 - Top global miner BHP Billiton's chief executive Marius Kloppers says he expects iron ore prices to stay strong for as long as two years, and is confident that the company's profit margins will remain robust, even as costs escalate.

Kloppers was bullish on the near-term outlook for iron ore prices due to supply constraints, with India not exporting and rivals having held back investment in new capacity during the global financial crisis.

“But what I can say is that there are certain products in our portfolio ‒ particularly iron ore ‒ which look very, very good over the next three, six and nine months,” he said on Australian television in an interview recorded after the company had reported a record first-half profit of US$10.7 billion.

“Simply put, over the next 12, 18 months, perhaps two years, there's not a substantial amount of new capacity coming on, and it's more an issue of the supply side rather than the demand side,” he said.

His counterpart at rival Rio Tinto was more specific a week ago, forecasting that tight supplies would keep iron ore prices high in the near term, but prices would fall below US$100/t from current record highs around US$190/t when mine expansions were completed in 2014 and 2015.

BHP announced last week it would spend US$80 billion on mine developments and expansions over the next five years, and Kloppers said that, based on expected returns on those projects, the company should be able to post compound growth of 5 to 6% a year for “many many years.”

“For us it's a question of where cost structures go, but I feel very comfortable that we're going to have healthy margins going forward,” Kloppers said on Australian Broadcasting Corporation’s “Inside Business show”, aired last night.
BHP had a 44% profit margin in the first half of this financial year.