BHP Billiton says it will cut costs at its iron ore mines by 25 per cent but insisted the recent price falls did not change its view about healthy long term demand.

BHP’s president of its iron ore business, Jimmy Wilson, told an analysts briefing in the Pilbara that the company had the potential to increase production by 65 million tonnes per year at a very low capital cost.

The current capacity is 225 million tonnes.

The iron ore price has plunged by 40 per cent this year and was trading at about five year lows of $US78.90 on Monday.

However Mr Wilson said while there was a current over-supply of the product, Chinese steel production is expected to increase by approximately 25 per cent to between 1.0 and 1.1 billion tonnes in the early to mid-2020s.

BHP expected to see a compound annual growth rate for global steel production of between 2.5 and 3.0 per cent between now and 2030.

“Meanwhile, steel production growth in other emerging economies is outpacing China as those nations urbanise and industrialise,” he told analysts.

“Unsurprisingly, high prices over the last decade created the incentives needed for new entrants to join the market and traditional producers to substantially increase supply.

“As a result, growth in seaborne supply is expected to exceed growth in demand over the short to medium term.”

BHP expected to cut its unit cash costs to less than $US20 per tonne in the medium term – which excludes freight and royalties – a reduction of more than 25 per cent on the current level.

BHP and other large miners are viewed as better placed to withstand the current weaker prices than lower grade, higher cost producers.