BHP Fourth-Quarter Iron Ore Production Rises 16%, Says Outlook is Cautious
Stock Chart for BHP Billiton Ltd (BHP)
BHP Billiton Ltd., the world’s largest mining company, said fourth-quarter iron ore production rose 16 percent, driven by expansions at its Australian mines and surging global steel demand.
Output was 31.2 million metric tons in the three months ended June 30 compared with 27.1 million tons a year ago, the Melbourne-based company said today in a statement. That compares with a 32 million ton estimate by Credit Suisse Group AG. Coking coal production also gained 16 percent.
Australia, the world’s largest iron ore exporter, will boost sales 50 percent this fiscal year, according to government estimates, as BHP and Rio Tinto Group expand output. Production of iron ore and petroleum, BHP’s No.1 and No. 3 earners, notched up annual records, while the company said it remained “cautious” on the global economic outlook.
“Given their key earnings metrics this is a pretty good result,” Chris Weston, head of institutional dealing at IG Markets in Melbourne said today by phone. “The iron ore production shows they want to continue growing.”
BHP gained 1.2 percent to A$38.75 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Weston prefers BHP to Rio because of its greater exposure to copper, he said.
Vale SA, the world’s biggest iron ore producer, rose yesterday on speculation that China, the world’s fastest expanding major economy, will ease measures to curb domestic growth. The International Strategy & Investment Group and Morgan Stanley said China may loosen measures to cut overheating.
“BHP continues to be cautious on the short term outlook for the global economy,” the company said in the statement. “Within China, measures introduced to reduce growth to more sustainable levels means volatility in commodity end-demand is likely to persist. BHP Billiton sees these measures as a normal continuation of China’s economic management policies.”
Full-year iron ore output for the year was 125 million tons and production in Western Australia was a record for a tenth straight year, BHP said in the statement. Prices will average 93.5 percent higher this year than in 2009, Morgan Stanley said last month.
Rio and BHP, the world’s second-and third-largest producers of the material used to make steel, are seeking to combine their operations in Australia’s Pilbara region to save $10 billion. Rio last week reported a 2 percent drop in ore output to 43.6 million tons for the quarter because of scheduled shutdowns. Brazil’s Vale SA is the world’s largest producer of iron ore.
Sales of the ore contributed 21 percent of BHP’s total revenue in fiscal 2009, according to data compiled by Bloomberg. BHP is expanding its Pilbara iron ore mines to 240 million tons, including spending $4.8 billion on the fifth part of its so- called Rapid Growth Projects that will add 50 million tons.
Global steel production rose 18 percent to 119 million metric tons in June, the World Steel Association said yesterday in a report on its website. The cost of 62 percent iron ore delivered to the Chinese port of Tianjin, which fell to a six- month low on July 14, rose for a fourth day yesterday. It climbed 3 percent to $121.60 a ton, according to The Steel Index.
Output of coking coal, used to make steel and BHP’s second- biggest earning unit, increased 16 percent to 10.9 million tons in the quarter, beating Credit Suisse’s forecast for 8.9 million tons. Energy coal output was 16.3 million tons, down 8 percent.
Total production of petroleum, its third-biggest earner, increased to 41 million barrels of oil equivalent. That compares to Credit Suisse’s estimate of 42 million barrels. Copper output declined 5 percent to 291,100 metric tons.
Vale, BHP and Rio, the biggest exporters of iron ore, this year abandoned a 40-year custom of annual contracts in favor of quarterly agreements as they bet on rising prices.
BHP said 39 percent of its ore shipments from Australia were priced using the benchmark system, with the balance sold on a shorter-term basis. In the second half, the old system was “substantially” replaced by short-term pricing, it said.
“Our expectation is that future Western Australian iron ore shipments will be priced on,” on a shorter-term basis, the company said.
The company is due to report its annual earnings on Aug. 25. Credit Suisse analyst Paul McTaggart on July 20 forecast net income of $13.7 billion for the period, compared with the $13.2 billion average of 24 estimates compiled by Bloomberg.
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