The Anglo-Australian mining company said also it expected to reduce iron ore unit costs at its Western Australia operations by 21 percent to $16 per tonne in the 2016 financial year, from just below $20 per tonne last month.
"That's is an incredibly low cost. That's targeting even lower levels than Rio," said Investec analyst Hunter Hillcoat.
Rival Rio Tinto, the lowest cost iron producer, had an average cash cost of $19.50 a tonne in 2014, and forecasts it will be about $17 a tonne this year.
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Analyst Paul Young at Deutsche Bank in Sydney said he expected Rio to still be ahead of BHP in 2016, forecasting its cost will fall to $13-14 a tonne.
Both producers have been helped in their cost-cutting efforts by weaker oil prices and a lower Australian dollar against the U.S. dollar. But competitors have benefited from these too.
"I don't expect these cuts to result in higher margins for BHP and Rio," said Liberum analyst Richard Knights. "Costs are being cut aggressively by marginal producers as well which in an oversupplied market, leaves more room for the price to fall."