BHP just forecast ‘another 10 years’ of iron ore glut

BHP Billiton (ASX, NYSE:BHP) (LON:BLT), the world’s largest mining company and the No.3 iron ore producer, is expecting at least another ten years of iron ore oversupply before the market balances out.

Speaking to reporters in New York, chief executive officer Andrew Mackenzie said seaborne would be one of the commodities to take the longest to stabilize, adding that while prices have recovered from last year historical lows, climbing slightly past the $60-per-tonne mark in early May, the rally is simply not sustainable.

CEO Andrew Mackenzie believes the iron ore market will take longer to balance out than other commodities as excess supply will likely take years to be absorbed.

One of the main reasons for iron ore prices slow recovery, Mackenzie said according to the Australian Financial Review, is an excess of steel-making ingredient supply coming on stream in the next few years.

“The reality is we’ve settled down now to a price that we would say is more realistic on the basis of fundamentals of supply and demand,” Mackenzie said. “We’ve had such a long boom. To walk that through, in my view, may take another 10 years.”

His predictions come despite recent moves by its two main rivals in the iron ore market, Vale (NYSE:VALE) and Rio Tinto (LON:RIO) towards slashing ambitious production targets, in an effort to restore balance to the commodity's skewed fundamentals.

BHP lowered in April its 2016 output guidance by 10 million tonnes only a day after number two producer Rio Tinto cut its 2017 forecast by 20 million tonnes and left its 2016 global shipments estimate unchanged at 350 million tonnes.

Ore with 62% content was at $50.87 a tonne Tuesday, way below the $70 it hit in April, according to Metal Bulletin. The raw material peaked in 2011 at more than $191, and the drop has driven closures and mergers among higher-cost miners.

BHP just forecast ‘another 10 years’ of iron ore glut

Australia's Port Hedland, the world's largest bulk-export terminal, handles cargoes for BHP, Fortescue Metals and Hancock Prospecting. (Image courtesy of of The Western Australian Land Information Authority)