As part of a three-day investor tour to the Pilbara, which starts today, BHP iron ore president Jimmy Wilson announced the plans to slash unit costs by at least 25% and increase capacity by 65 million tonnes per annum for a low capital cost.

Wilson said the company had already seen a 12% reduction in unit costs in the first six months of 2014 to $US25.89 per tonne but planned to go further.

"We have already significantly cut the cost of production at Western Australia Iron Ore and plan to go further," Wilson said.

"We expect unit cash costs of less than $20 per tonne in the medium term, a reduction of more than 25% on the average achieved in the 2014 financial year."

Wilson said the company's reserves were concentrated around the four major hubs of Mt Newman, Yandi, Mt Goldsworthy and Jimblebar, which would support a lower level of sustaining capital than required by its peers.

"With annual sustaining capital expenditure of approximately $5 per tonne over the next five years, we aim to be the lowest cost supplier to China on an all-in cash basis," he said.

BHP's main rival Rio Tinto is the Pilbara's lowest cost producer with unit costs of $20.80/t in 2013.

BHP is also planning to add an extra 65Mtpa of production at a capital intensity of just $30/t to take total production from 225Mtpa currently to 290Mtpa by the end of FY17.

By comparison, Fortescue Metals Group's T155 expansion was completed this year at a capital intensity of $92/t.

"The economics of further increasing our production are compelling," Wilson said.

"We completed our major supply chain investments some time ago and have since focused on using BHP Billiton's benchmarking systems to improve the performance of our equipment by systematically tackling the bottlenecks."

WA iron ore capacity can reach 275Mtpa without any additional investment in fixed plant.

"Beyond that, the inner harbour debottlenecking and Jimblebar phase 2 projects will help us to reach 290Mtpa of supply chain capacity at low capital cost," Wilson said.

The inner harbour and Jimblebar phase 2 projects are subject to board approval.

Guidance for FY15 is 245Mt.

Wilson said due to an anticipated transition in the iron ore and steel industry, which has seen high-cost production displaced, BHP had turned its focus from supply chain investment to productivity, cost reduction and capital efficient growth.

"We continue to see healthy demand growth for iron ore in the mid-term as Chinese steel production is expected to increase by approximately 25% to between 1 and 1.1 billion tonnes in the early to mid-2020s," he said.

"Meanwhile, steel production growth in other emerging economies is outpacing China as those nations urbanise and industrialise.

"We expect to see a compound annual growth rate for global steel production of between 2.5% and 3% between now and 2030.

"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."

Shares in BHP fell 1.9% to $A32.81, the lowest level since July 2013.