BHP Billiton Limited (ASX: BHP), in its new form after shedding South32 Ltd (ASX: S32) and its non-core assets, has reported a 14% increase in iron ore production to 233 million tonnes. The giant miner is also forecasting a 6% increase to 247 million tonnes in the 2016 financial year.
That is likely to scare the junior miners including Atlas Iron Limited (ASX: AGO), BC Iron Limited (ASX: BCI), Mount Gibson Limited (ASX: MGX), Arrium Limited (ASX: ARI) and Mineral Resources Limited (ASX: MIN). When the big miners like BHP and Rio Tinto Limited (ASX: RIO) continue to ramp up production (see chart below), despite huge price falls, immense pressure falls onto the junior, smaller miners, particularly those with large debts and/or lower quality iron ore.
BHP also says that it will lower unit production costs to an astonishing US$16 per tonne. The spot iron ore price could halve from its current level of US$52 per tonne, and BHP would still be making money from iron ore.
Fortescue Metals Group Limited (ASX: FMG) also won't be happy to see BHP increase production. Demand for Australian iron ore could fall – especially after China enhanced its ties with Brazil's Vale – currently the world's largest iron ore miner, as I outlined here for the Sydney Morning Herald. With China the largest consumer of seaborne iron ore, there's only one way the iron ore price is going – and it's not up.
