BHP head of commodity analysis and economics Vicky Binns told journalists during a marketing briefing that steel production could jump to more than 1 billion tonnes by 2025.

“Focusing on the long-term drivers in China, an economy that is likely to continue to urbanise about 15 million people a year for the foreseeable future, we can see that steel production could increase by more than 40 per cent by 2015 and could more than double to more than 1 billion tonnes by 2025,” she said.

She also said Chinese and other emerging nations could push seaborne iron ore demand 250% above current levels.

“To put it simply, this equates to more than 1 billion tonnes of incremental iron ore demand over the next 15 years.”

However, in the short term, Binns raised concerns over the recent rise in Chinese steel inventories which were at close to record levels.

“Instead of the inventories following the customary summer inventory drawdown in China, the supply chain inventories have, in fact, increased by 30 per cent over July and August,” she said.

On the positive side, Binns noted that steel inventories in Japan and the United States were at record lows and required substantial volumes of steel to bring those inventories up to normal levels.

“However, unless restocking is underpinned by real demand growth, the sustainability of steel prices in the OECD [Organisation for Economic Cooperation and Development] could be tested,” she added.

Meanwhile, BHP president of marketing Tom Schutte talked up the benefits of applying floating price mechanisms instead of benchmark prices across the company’s suite of commodities.

“The evolution to flexible, floating price mechanisms is already happening,” he said.

He pointed out there were misconceptions in the market that the annual benchmark pricing of iron ore was a more stable mechanism than spot prices.

“Comparisons of Australian benchmark iron ore prices and China spot show that spot prices are more efficient at capturing the changes in supply-demand fundamentals than benchmark prices,” he said.

“Floating prices reflect true supply-demand fundamentals that exist when the product is priced, not those set at the beginning of a certain period when external factors could have been vastly different.”

Schutte told journalists that spot pricing provided a more efficient signalling mechanism that more supply was needed in the market or that there was an over-supply in the market.

He also noted that rather than buyers and sellers being tied up in annual benchmark pricing talks, negotiations could instead focus on product quality or shipping and logistics arrangements.

On the copper front, BHP base metals marketing director Dave Martin said the challenge ahead would be for copper producers to meet the insatiable Chinese demand for the red metal.

“We have a challenge in copper supply and need the industry to develop resources,” he said.

“If we take the current mines and add to them planned expansions, mines under construction and probable greenfield expansions, we end with a significant supply gap of approximately 10 million tonnes in 2020, some of which would be filled by scrap.

“In our view, China will provide the demand in growth over the coming years. The challenge we have is to meet that demand.”

Shares in BHP have gained 60c to $39.60 in morning trade.