The End of a Sodden Quarter for BHP

BHP Billiton's low third-quarter volumes did not surprise us and we forecast above-average 2012 margins based on historically high commodity prices and solid return on invested capital

Mark Taylor 17 May, 2011 | 5:30PM
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As expected, BHP Billiton (BLT) reported sharp declines in fiscal 2011 third-quarter volume for most commodity categories. Hardest hit was coking coal, down 34% to 6.2 million tonnes courtesy of persistent Queensland rainfall associated with La Nina weather patterns. Force majeure remains in place for the majority of Bowen Basin mines and will probably crimp metallurgical coal volume for the rest of 2011. Australian rain also affected iron ore volume, down 6% to 32.9 million tonnes, and nickel volume, down 20% to 34.6 kilotonnes. The rain effect was exacerbated by tie-in activities at Western Australian iron ore, maintenance at Nickel West, and a furnace replacement at the Cerro Matoso nickel mine in Colombia. Petroleum output fell 4% to 35.8 million barrels of oil equivalent because of northern Australian cyclones, though permitting delays in the Gulf of Mexico also were a factor.

Even beyond the reach of the Australian weather, the production gods weren't smiling. Copper output declined 11% to 270 kilotonnes, though in line with expectations--lower copper ore grades at Escondida in Chile were well flagged. Alumina production fell 12% to 882 kilotonnes because of a calciner outage at Worsley.

However, the two hardest-hit segments in terms of volume--carbon steel materials and copper--also enjoyed the strongest gains in price, and the commodity price action eclipsed the volume effects. CSM and copper are the largest contributors to revenue and profit. We estimate group third-quarter revenue at around $19 billion, or 37% above the year-ago quarter, despite volume being in line. CSM prices are 60% higher and copper prices 30% higher than a year ago.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC2,041.50 GBP0.00Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.