BHP Iron Ore Output Advances 14%, Meeting Expectations

By Elisabeth Behrmann - Apr 18, 2012
Bloomberg
BHP Billiton Ltd. (BHP), the world’s largest mining company, said third-quarter iron ore production rose 14 percent as it expands its mines and port in Australia, while warning that strikes severely depleted coal stocks.

Output of the steelmaking raw material, its biggest earning unit, was 37.9 million metric tons in the three months to March 31, compared with 33.2 million tons a year earlier, the Melbourne-based company said today in a statement. That compares with the median estimate of 37.3 million tons from four analysts compiled by Bloomberg.

BHP and Rio Tinto Group (RIO), which yesterday reported quarterly iron ore output that missed expectations, are expanding production of the raw material to keep pace with Chinese demand. Steel production in China, the biggest producer, hit a record last month as new plants raised output amid higher prices, the National Bureau of Statistics said.

“Iron ore is obviously positive just through the sheer drive to develop that particular commodity,” said David Lennox, resource analyst at Fat Prophets. “Their key iron ore division especially is running flat out.”

BHP rose 1.6 percent to A$34.68 at 10:53 a.m. in Sydney trading, the highest since April 4. Rio, the second-largest iron ore exporter behind Vale (VALE5) SA, reported yesterday a lower-than- expected 9 percent gain in output to 45.6 million tons. Vale’s quarterly output dropped 2.2 percent because of adverse weather to 70 million tons, the Rio de Janiero-based company said yesterday.

Steel Demand

China’s steel demand will remain positive until at least 2025 and production will rise to about 1.1 billion tons by 2025 from about 700 million tons currently, BHP said last month. The company is doubling iron ore capacity by 2020 and in January received initial approval for an expansion of its export harbor in Western Australia.

The Outer Harbor Project may cost $22 billion, Credit Suisse Group AG analysts Paul McTaggart and James Redfern, who rate BHP “outperform,” said in an April 12 report.

The economy in China, the world’s biggest metals consumer, expanded 8.1 percent during the first quarter, missing forecasts as exports and demand cooled.
“China had an abnormally soft first quarter,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. (ANZ), said April 16. “New loans issued for March and the first quarter are running 20 percent ahead of last year. That liquidity is going to find its way through to higher activity.”

Petroleum, Gas

Output of petroleum products, the company’s second-biggest earner in the six months to Dec. 31, rose 58 percent compared with last year to 56.5 million barrels of oil equivalent following the acquisition of almost $20 billion of U.S. shale gas assets. BHP, Australia’s largest oil and gas producer, boosted output of petroleum liquids from its onshore acreage in the U.S. by 35 percent on the December quarter after natural gas prices slumped to the lowest in a decade.

Production of coking coal, used in steelmaking, rose 10 percent to 7.3 million tons, even as strikes and wet weather affected the business. That compares with a median forecast of 7.8 million tons from four estimates.

Coal Strikes

“The extent to which industrial action will continue to affect production, sales and unit costs is difficult to predict, however with inventories now severely depleted, the impact on future quarters may be significant,” BHP said in the statement. BHP declared force majeure, a legal clause used when suppliers can’t meet obligations because of circumstances beyond their control, on April 2.

More than 3,000 workers at seven mines belonging to the BHP Billiton Mitsubishi Alliance, the world’s biggest exporter of the fuel, intensified strike action since February in a dispute over pay and conditions that has lasted since June. BHP shut Norwich Park, the smallest mine, last week saying the operation had been unprofitable for months because of rising costs and lower coal prices.

Copper output rose 3 percent to 281,400 tons, nickel gained 26 percent to 41,700 tons while zinc fell 26 percent, the company said. Thermal coal production declined 2 percent to 17.2 million tons.

BHP has 14 “buy” and 5 “hold” analyst recommendations, according to data compiled by Bloomberg.