Before long I’ll be the only bear left standing. From Mac Bank:
BHP Billiton‟s President of Iron Ore Jimmy Wilson presented at the Macquarie Western Australia Forum on Tuesday. In line with the Macquarie view, BHP expects new supply from high margin, low cost projects to flatten the cost curve and put pressure on medium term iron ore prices (note: BHP used Macquarie‟s cost curve in their presentation). BHP also sounded more optimistic on the outlook for iron ore demand than it has in the recent past citing a forecast 7.5% CAGR in China GDP through to 2025 and implied annual 3.5% pa steel demand growth over the same period. Meanwhile, BHP is looking to squeeze more from legacy Pilbara investments as the focus shifts to efficiency gains to push on to 260-270mtpa. Although the Inner Harbour expansion will need to compete for capital within the confines of the recently imposed capex ceiling of ~U$15bn post FY14, our resources analysts see it offering among the highest returns in the BHP portfolio. Interestingly, BHP even mentioned the Outer Harbour as a valuable longer term option.
This does have the feel of the echo chamber about it. 3.5% steel growth is high relative to consensus. My outlook remains the same: China adjustment, 1-2% demand growth, supply deluge, irrational market response, falling prices. If Outer Harbour is developed in my lifetime I’ll hang up my analysts boots.
