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BHP Billiton's marketing boss Mike Henry says iron ore prices of less than $US100 are the new normal, and the mining giant has incorporated that forecast into its plans.
Mr Henry said the iron ore price was unlikely to eclipse $US100 for a sustained period, because at that threshold a lot more fresh supply is incentivised to market, which would in turn push prices back down.
"Could you see iron ore back up over $US100? For a short period of time, possibly, yes," Mr Henry said.
"What I'm pretty confident about is that you are not going to see iron ore back above $US100 on a sustained basis in real terms ... Prices over the long run will be sub that sort of level. Is that baked into our plans? Absolutely, yes."
BHP, like fellow iron ore majors Rio Tinto, Fortescue Metals Group and Brazil's Vale, is pushing to lift output by using existing infrastructure, which reduces operating costs.
Spot iron ore has fallen 40 per cent this year to about $US83 a tonne, and BHP and Rio have been criticised by rivals such as Glencore over the impact of their expansion.
The price decline has also sparked a furious response from Western Australian Premier Colin Barnett, who says BHP and Rio are running "flawed" strategies, while suggesting they were colluding.
But Mr Henry said BHP's expansion "is a natural and necessary thing that we are doing", and it was good for Australia.
"Iron ore is fundamentally not a scarce resource," he says. "So the choice is: Do we as a nation, do we as a company, want to capture that opportunity, or do we want to cede that to someone else – another country, another region, another company. If we weren't right there capturing the opportunity, somebody else would be doing it."
Australia has a prime position in iron ore export as it is closer to Asian buyers than much of the competition, and its ore was close to the surface and to port.
For BHP, and Australia, "not to try to leverage that advantage would be crazy", Mr Henry said.
About 50 to 70 million tonnes of high-cost domestic Chinese production has been pushed out of the market this year, and there was about another 80 to 100 million tonnes to come out "over time", Mr Henry said.
He said China has production capacity of 400 million tonnes, but it had fallen to about 330 million tonnes at the beginning of the year, and that had fallen to between 270 and 280 million tonnes currently.
"Over time you will see more Chinese high-cost capacity come out of the marketplace," he said.
"You'll have around 200 million tonnes in China for the long run because it is competitive – either because of inherently low mining costs, or because it is geographically proximate to demand, and therefore has less by way of transportation costs."
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