Analysts and senior executives at BHP Billiton and Rio Tinto have played down the prospect of Africa's emergence as a competitor to Australian iron ore, saying cost barriers for new players could be too great in an environment of softening commodity prices.
The comments, made at an iron ore conference in Perth yesterday, are a blow to the WA-based hopefuls with big plans for their African developments.
BHP Billiton vice president of planning Tony Ottaviano told the conference the miner believed future demand for steel in China would grow at half the rate of its GDP expansion. That was a significant change from the past decade when Chinese steel demand grew by an average of 150 per cent of GDP growth.
Mr Ottaviano said moderating demand cast doubt on the emergence of new sources of iron ore because lower cost producers - BHP, Rio and Vale - could meet China's needs from existing iron ore regions.
"Over the last decade, high-demand growth rates associated with China's steel intensive phase overwhelmed the capacity of major low-cost supply bases. In turn, prices responded to induce high cost opportunistic supply," he said.
"Given the continuing decline of steel intensity per unit of GDP growth, significant low-cost supply planned in Australia and Brazil will eventually meet, and then exceed, incremental Chinese demand."
BHP has all but abandoned its push into Africa, and doubt is growing about Rio's commitment to its giant Simandou project in Guinea.
Mr Ottaviano was echoing comments by Rio Tinto president of Pilbara operations Greg Lilleyman. While ducking questions about the future of Simandou, Mr Lilleyman said infrastructure investment was a "pretty formidable" barrier for new iron ore players.
"In terms of other projects, whether they're Rio's or other projects around the world, inevitably if prices are lower moving forward than the period we've just come from they're not going to be easy," he said.
"With long-run iron ore prices, they're all going to be tough."
Other conference speakers also cast doubt on whether Africa would be able to bring on supply quickly and cheaply enough to compete.
Raw Material Group senior analyst Anton Lof said he did not believe the continent would emerge as a serious iron ore player in the near future.
"There will be some mines, yes, but most of the major producers that said they're going to produce and build the mines are now reviewing their options and are hesitant," he said.
"But if the world population continues to grow, and we already know that it is, and if standards of living are continuing to increase, which they are, then eventually West Africa will be needed as an iron-producing region."This probably has nothing to do with China but rather with India and other areas in the world."
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