BHP hikes iron-ore supply to oust China rivals

BHP Billiton (NYSE: BHP) (LON: BLT), the world's largest miner, is striving to increase its iron-ore supply and so displace Chinese competitors, the company revealed this week as it announced having shipped its billionth tonne of the ore to Japan.

The production hike, which comes despite iron-ore prices having plunged earlier this year, is intended to solidify BHP's dominance by pushing higher-cost Chinese suppliers out of the market.

The recent closing of a number of domestic Chinese producers suggests the Australian major's strategy is succeeding.

Such high-cost producers have reacted slowly to the production ramp-up also being conducted by Rio Tinto (NYSE:RIO), Fortescue Metals (ASX:FMG) and Brazil's Vale (NYSE:VALE), Mike Henry, BHP's president of marketing, was quoted by The Sydney Morning Herald as saying.

He described "a significant overhang of low-cost supply coming to market in the face of a slow but steady increase in demand,” according to the daily. "So it’s really important for the high-cost suppliers to shut in a reasonably efficient manner in the face of that – otherwise you just see a compounding of supply in the market."

Iron-ore prices are recovering as China, another key Asian market, shuts its high-cost mines and announces upbeat manufacturing data. After dipping to a two-year low of U.S.$89 a tonne in June, the steel-making ingredient is now fetching $96 a tonne.

While that still represents a 30% drop in value since the start of the year, it has many optimistic that the commodity may be entering a bullish phase.

Billionth tonne

The news came during a gathering of BHP's employees, customers and joint venture participants Wednesday at Western Australia's Port Hedland to celebrate the company's having shipped its billionth tonne of iron ore to Japan.

"BHP Billiton shipped its first tonne of iron ore to Japan in 1966 and we are proud of the nation-building role we have helped play since that time," Jimmy Wilson, BHP president of iron ore, said in a statement.

Since then, the Melbourne-based firm's iron-ore production capacity has greatly expanded. It now stands at 220 million tonnes annually and is swelling, the company said.

“We also owe much to Japan for their role in growing the iron-ore industry in the Pilbara," Wilson said.

Japanese demand for the metal, essential to the Asian country's high-tech steel industry, helped shape the manufacturing, technology and heavy industry sectors in the Western Australian region.

Meanwhile, China is to receive its billionth tonne of iron ore from BHP later this year.