While the coal business reported revenues of $2.3 billion for the half year, the outlook remains uncertain for BHP Billiton, which shocked analysts yesterday with an overall loss of $8.3 billion.
BHP Billiton CEO Andrew Mackenzie said: “Slower growth in China and the disruption of OPEC have resulted in lower prices than expected. However, our company remains resilient with assets that generate free cash flow through the cycle and a strong balance sheet.”
In metallurgical coal, industry-wide supplier cost compression is expected to persist through the 2016 calendar year, with recent devaluations in China’s currency highlighting a key uncertainty for seaborne demand as imports become relatively more expensive, according to BHP Billiton.
“While high-cost seaborne supply will continue to rationalise, we expect further growth in low-cost, premium hard coking coal supply to offset production cuts and constrain potential for near-term price recovery,” it said.
“In the long term, we expect emerging markets such as India to support seaborne demand growth, while high-quality metallurgical coals will continue to offer steel makers value-in-use benefits to their operations.
“Our outlook for Chinese crude steel production remains unchanged, peaking between 935 million tonnes and 985Mt in the middle of the next decade, as China continues to urbanise and mature its manufacturing capability.”
In the short term, Chinese steel demand is expected to remain soft, with modest potential improvement if construction and infrastructure activity ramp-up in the first half of the 2016 calendar year, according to BHP Billiton.
BHP’s coal operations benefited from a stronger US dollar, lower diesel prices and a reduction in labour and contractor costs reflecting continued productivity improvements.
“This offset inventory write-downs due to weaker coal prices, the impact of a
convergence event at the Broadmeadow mine, a higher than usual number of planned maintenance shutdowns, and costs associated with the closure of the Crinum mine as it reached the end of its economic reserve life,” it said.
“Unit costs for the 2016 financial year are now expected to be $US59 per tonne, as favourable currency movements offset the removal of low-cost Crinum volumes.”
