Record prices won't be there in 10 years: BHP

THE smaller groups that emerged in the past decade to snatch a piece of the mining boom will now likely find themselves under growing pressure, according to BHP Billiton chief Marius Kloppers.

Dr Kloppers said the massive price leaps in the early 2000s brought with it a perception that not only was it a "boom for everyone" but that many ignored how costly it was to mine some areas because the demand was so strong.

After what he described as the "lean times" of the 1980s and 1990s, the past decade had the price of iron ore increase by 1000% and coal climbing by 700% as 200 million people in China shifted from rural settings into urban areas.

As the need for roads, buildings and rail increased, so too did the need for steel - a byproduct of iron ore and coking coal.

The demand and resulting higher international prices meant it was worthwhile to build costly operations that would have been far too expensive to develop or maintain in the years before.

Now the demand for steel in China - though still expected to remain strong for another decade - has peaked.
With that peak comes falling prices for iron ore and coal, delivering harsh new challenges for the industry's less powerful players.

"In effect, what this means is that the record prices we experienced over the past decade will not be there to support returns over the next 10 years," Dr Kloppers said.

"What we can instead expect is demand growth at more predictable and sustainable levels and more moderate pricing."

Dr Kloppers said it was something BHP had "anticipated for some time".

With international minerals price dragging Australia's resource industry up by its collar, it was time to focus on how well we are working.

"As we look to the future environment of (moderating) prices that I just described, costs and productivity will be key for both industry and Australia more generally."


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