BHP chief economist Huw McKay has talked up the prospects of iron ore in a decarbonising world, citing the importance of steel in low-carbon infrastructure.
While the mining giant has previously been bullish on the prospects of nickel, copper and potash as so-called forward-facing commodities, Dr McKay said on Tuesday crude steel demand would also be a net beneficiary of global decarbonisation.
Speaking at the Minerals Council of Australia’s Minerals Week conference in Canberra, he said steel was inescapable when one considered how the globe would build the infrastructure of decarbonisation.
He noted 124-190 tonnes of steel would be required per megawatt of wind capacity.
Aside from the use of steel in decarbonisation, Dr McKay predicted that by the middle of the century, China would have almost doubled its accumulated stock of steel in use, which was currently 7-8t per capita.
That would be on its way to an urbanisation rate of about 80 per cent and living standards around two-thirds of those in the US.
However Dr McKay cautioned that the path of steel run rates to get to the doubling of stock remained “highly uncertain”.
The company’s base case remained that Chinese steel production was in a plateau.
Dr McKay’s comments come after BHP boss Mike Henry last month flagged a possible 40 million tonne expansion of the mining giant’s powerhouse WA iron ore division.
Delivering his short-term outlook, Dr McKay warned “things will get bumpy” in the next year or two given growth in advanced economies would be under “downward pressure”.
“It’s probably going to be especially difficult for the non-ferrous metals which have historically shown themselves to be the most sensitive to the growth cycle in the advanced economies,” he said.
On iron ore, he noted the steel-making commodity had moved into a considerable supply surplus in the second half of last year, tightening somewhat in the first half of 2022.
“But on balance it seems likely to be registering an expanding surplus over the next 12 months,” Dr McKay said.
The surplus would be underpinned by a stronger aggregate operational performance by the seaborne major suppliers than what had been observed in recent history combined with a pick-up in the availability of non-ferrous scrap.
His comments follow Macquarie Bank’s move to slash its December-quarter forecast for the benchmark iron ore price to just $US85 a tonne, down from $US135/t previously.
The investment bank is tipping a global iron ore surplus of 25 million tonnes this quarter, rising to 35Mt by the end of 2022, with the market not expected to rebalance until the December half-year of 2023.
Other analysts have also slashed their iron ore price forecasts, citing a darkening cloud over China’s property sector, which Dr McKay described as having a supply rather than a demand problem.