The Rising Influence of Rising Affluence

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BHP Logs Record Iron-Ore Output in FY2Q12, Raises FY Guidance

[BHP just issued its FY1H12 (7/1/11-12/31/11) reports for production and development/exploration—see http://www.sec.gov/Archives/edgar/data/811809/000119312512014616/d284581d6k.htm and http://www.sec.gov/Archives/edgar/data/811809/000119312512014624/d284610d6k.htm , respectively. BHP’s outlook is bullish because, despite all the naysayers, demand for iron ore in China remains strong (#msg-70959130) and the pricing outlook is not bad (#msg-70946268). BHP reports FY1H12 earnings on 2/8/12.]

http://online.wsj.com/article/SB10001424052970204468004577167720941253202.html

›JANUARY 19, 2012
By ROBB M. STEWART

MELBOURNE—BHP Billiton Ltd. said Wednesday it was set for another record year of iron-ore production after bumper output in the most recent quarter as it continues to expand operations in Western Australia's arid Pilbara region.

BHP's optimism over demand for its primary earnings driver helps damp predictions of a slowdown in industrial development in China, the world's biggest consumer of iron ore and other minerals. Anglo-Australian rival Rio Tinto PLC a day earlier posted record iron-ore output in the recent quarter as it too invests billions of dollars in mines and ports.

BHP, the world's largest mining company by revenue and market value, said in its quarterly exploration-and-development report that output of the steelmaking commodity rose 22% [YoY] in its fiscal second quarter ended in December, to slightly more than 41 million metric tons. Operations in the arid Pilbara region posted record production on an annualized basis.

"Full-year production is now forecast to marginally exceed prior guidance of 159 million tons per annum," the Melbourne-based company said.

Market prices for iron ore have been volatile in recent months as Chinese steel companies have reduced output and as concerns over the economic health of Europe have grown. Analysts have recently scaled back earnings expectations for mining companies as they have reduced their forecasts for most metal prices, which has put further pressure on share prices. BHP's shares fell about 24% last year and Rio's dropped almost 30%, compared with a 16% decline in the broader Australian market.

Analysts at Macquarie in a research note said they expect to see an improvement in Chinese steel output volumes this year, which, in light of limited global growth in iron-ore supplies by sea over the next couple of years, should support ore prices.

Neville Power, chief executive of Fortescue Metals Group Ltd., Australia's third-largest iron-ore producer after Rio and BHP, Tuesday said Chinese demand remains strong despite the recent fall from records in the commodity's price.

BHP's petroleum division, another big contributor to annual profit, boosted production 56% on the year in the three months through December to almost 58 million barrels of oil equivalent following last year's acquisitions of U.S. shale assets.

Base metals showed a recovery during the quarter, although year-to-year copper output was down 7%.

Aluminum production was flat for the quarter and the six months through December. The company said the business continues to be challenged by cost pressure and weaker prices. Aluminum also has proved a drag for Rio, which has said it expects its division's earnings to be slightly below break-even for the second half of 2011.

BHP said quarterly metallurgical-coal production rose 9% from a year earlier but was down 9% from the preceding quarter as thousands of workers at Queensland mines staged rolling strikes. Employment negotiations have dragged on for more than a year, and BHP said it was difficult to predict how industrial action might impact output, sales and costs.‹