(Minews) - The head of the world's largest mining company BHP Billiton said on Tuesday that the price of its main commodity, iron ore, is likely to fall in the near term under pressure from increasing global supply.
BHP Billiton and peers Rio Tinto and Vale are pushing additional ore into a market where there is a lack of corresponding demand growth.
Iron ore, which accounts for almost half of BHP's earnings, has lost more than half of its value in the past two years.
"Although we see some loss of production, particularly from expensive Chinese iron ore (producers) ... we still see a growing surplus of low-cost supply and therefore, if anything, the pressure on the price is (still) downward," BHP Chief Executive Andrew Mackenzie said in a call with analysts after the company posted a 31 percent drop in half-year profit.
The medium-term outlook for iron ore is also cloudy, BHP's chief financial officer said, pointing to growing volumes of scrap that can be a substitute for iron ore as a raw material for steelmaking.
"As the finance guy, I am really happy that we don't have a whole heap of capital going into big projects in iron ore," CFO Peter Beaven said.
Mackenzie has defended BHP's strategy of high-volume iron ore production as the best way to increase market share and profit in a gloomy market, though the price outlook leaves smaller producers struggling close to the break-even point.
"We are done investing (in iron ore), we have only a small amount of investment that we continue to consider ... Then we are finished," Mackenzie said.
"However I do fear that other competitors have an awful lot more capital waiting in the wings to invest in expanding very low-cost iron ore."
