BHP Iron Ore Output Rises Despite Glut Fears

By Rhiannon Hoyle 

SYDNEY-- BHP Billiton Ltd. is digging up more iron ore than anticipated as it works its Australian mines harder, a push that will likely fan fears of a deepening oversupply of the raw material.

The value of the steelmaking ingredient has plummeted more than 60% since the start of last year, to decade lows, as miners including BHP and Rio Tinto PLC increased output from their mines in Australia's iron-rich Pilbara region. Analysts say the seaborne market, largely in balance until this year, is facing a ballooning glut that will take years to clear.

BHP said it produced 59.0 million metric tons of iron ore in the three months through March, up one-fifth on the same period a year earlier and 5% on the quarter immediately prior. As a result, the Anglo-Australian resources giant lifted its output forecast for the year through June, saying it now expects to record group production of 230 million tons, 2% more than previously anticipated.

That comes just a day after Rio Tinto signaled it would have to accelerate production in the coming months to compensate for weaker-than-expected shipments in the same quarter through March. Rio Tinto's sales were hampered by heavy rains during a tropical cyclone, and a train derailment.

BMO Capital Markets said Rio's need to ramp-up output to meet its full-year targets was a "red flag" for an already oversupplied iron-ore market.

Analysts worry the seaborne market will be saturated by another wave of new supply in the months ahead, including billionaire Gina Rinehart's new 55-million-ton-a-year Roy Hill mine in the Pilbara.

"The bottom line is the market is in surplus," said Mark Pervan, Melbourne-based analyst for Australia and New Zealand Banking Group. "In our view, there is now further pressure on prices in the near term," he said Wednesday.

Rio Tinto is the world's second-largest exporter of iron ore, after Brazil's Vale SA. BHP is the third largest.

Unlike its rival, BHP said it was little affected by wet weather in the region early in 2015. And a campaign to get more out of its existing operations through productivity improvements, such as turning around trucks and trains faster, had been more fruitful than anticipated.

"The potential of our installed infrastructure continues to exceed expectations," BHP said in its quarterly operational report.

BHP operates a vast network of iron-ore mines, railway and port terminals in Australia's remote northwest, and has iron-ore interests in Brazil.

Its productivity push has been so successful, it says, the miner has deferred a project designed to improve its infrastructure at Port Hedland, the world's largest iron-ore export hub. The miner indicated it may try to reach its targeted production rate of 290 million tons without the project, which would reduce costs.

BHP has repeatedly defended its iron-ore production increases, despite the rapid downturn in prices.

"Despite the subsequent increase in supply-side competition, these low-cost expansions continue to deliver attractive margins and returns through the cycle," Chief Executive Andrew Mackenzie said in the report.

Write to Rhiannon Hoyle at [e-mail]

Access Investor Kit for Rio Tinto Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000RIO1

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0000566504

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US05545E2090

Subscribe to WSJ: http://online.wsj.com?mod=djnwires