BHP Billiton Raises Iron Ore Output Forecast After 23% Increase

BHP Billiton Ltd., the world’s largest mining company, raised its full-year iron ore production forecast after first-quarter output of its biggest earning unit jumped 23 percent.

Production of the steelmaking material was 48.8 million metric tons in the three months ended Sept. 30, from 39.8 million tons a year earlier, Melbourne-based BHP said today in a statement. That compares with the 47.8 million ton median estimate of six analysts surveyed by Bloomberg.

The increase coincides with rising demand from steel mills in China, the biggest buyer of the raw material, where imports gained to a record 75 million tons in September. Iron ore is the biggest contributor to BHP’s profit, comprising 43 percent, or $12.2 billion, of its earnings before interest, tax, depreciation and amortization in the 2013 fiscal year.

“You will continue to see these guys push out more iron ore,” said Chris Drew, an analyst in Sydney with Royal Bank of Canada. “You’ve seen an upgrade to iron ore expectations for the year, which should support earnings.”

BHP advanced 4.2 percent to 1,950.5 pence by the close in London, the highest in two months. It climbed 2.35 percent to A$37.05 in Sydney trading, also the highest in more than two months. The company has outperformed its global peers this year, slipping 0.1 percent compared with a 21 percent decline in the 110-company Bloomberg World Mining Index.

Total iron ore output will rise to 212 million tons this year from its earlier forecast of 207 million tons, after improvements in the supply chain at its West Australian mines delivered record production. It sees a “strong” outlook for steel production underpinning demand, Jimmy Wilson, the company’s head of iron ore said in a presentation last week.

Bull Market

Iron ore entered a bull market in July as users in China replenished stockpiles that shrank in March to the lowest level since 2009. Prices at Tianjin measured by The Steel Index Ltd. have rallied 21 percent from this year’s low on May 31 to $133.30 a ton today.

Morgan Stanley this month boosted forecasts for the first and second quarters of next year. Iron ore will average $130 a ton in the first three months, $5 more than previously forecast, and $120 in the second quarter, up from $117, analysts Peter Richardson and Joel Crane wrote in a report.

“Our pursuit of productivity gains and operating excellence is already yielding strong results,” Chief Executive Officer Andrew Mackenzie said in the statement. “There is no better example than in our iron ore business.”

Net Income

BHP in August reported a 30 percent drop in net income in the last fiscal year to $10.9 billion. Only Rio de Janeiro-based Vale SA and Rio Tinto Group of London, ship more iron ore than BHP.

Rio Tinto, the second-biggest iron-ore shipper, last week also reported record ore production at its mines in Australia’s Pilbara region.

BHP’s total petroleum output was a record 62.7 million barrels of oil equivalent, up 2 percent from a year earlier. That beat the 60.3 million barrel median estimate of 6 analysts surveyed by Bloomberg.

Full-year production forecast for petroleum was maintained even as the company carries out planned maintenance at its Pyrenees site in Australia this quarter, which it said would halt a floating production storage and off-take facility for about one month.

The company expects to take a charge of about $100 million in fiscal 2014 as its optimizes its gas program and terminates rig contracts. BHP’s onshore U.S. rig count declined to 27 from 40 during the quarter, it said.

Output of coking coal, BHP’s fourth-largest source of revenue, rose 14 percent on the previous year to 10.2 million tons, it said in the statement.

Thermal coal output gained 3 percent to 19.6 million tons, BHP said. Copper advanced 6 percent to 403,300 tons.

BHP maintained its full-year output guidance for coal and copper, it said in the statement.

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