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PREVIEW-BHP Pressing Pedal on Gas Output as Iron Ore Demand Slows

iconApr 15, 2013 09:20
Source:SMM
Mining and petroleum company BHP Billiton is set to report a rise in quarterly output from its petroleum division after producing more gas in the United States in response to higher prices.

* What: BHP Billiton, Rio Tinto quarterly production data

* When: April 16 (Rio Tinto), April 17 (BHP)

SYDNEY, April 12 - Mining and petroleum company BHP Billiton is set to report a rise in quarterly output from its petroleum division after producing more gas in the United States in response to higher prices.

The increase, by as much as 4 percent over the previous quarter to about 67 million barrels oil equivalent (mmboe), will keep BHP on track to meet its fiscal 2013 production forecast of 240 mmboe.

It will also show the world's biggest diversified miner by revenue is moving ahead with a strategy of relying more on petroleum to offset weakness in iron ore, its No. 1 revenue earner.

Iron ore's contribution to revenue fell to 29 percent in the half-year ended December from 31 percent in the prior six months. Petroleum accounted for 21 percent of BHP's revenues in the latest half-year versus 18 percent in the prior period.

BHP, which will release March quarter production data on April 17, and rival Rio Tinto are both forecast to report a drop in quarterly iron ore output due to shipping interruptions caused by cyclones in Australia. Rio Tinto is releasing production data on April 16.

Uncertainty about global growth and, in particular, about China, a top user of iron ore and several other commodities, has cast a shadow on the sector as a whole.

China's economy grew 7.8 percent in 2012, its slowest pace since 1999. With the country importing less, most industrial metals are under pressure. Copper and nickel prices have fallen around 5 percent this year, while zinc is down nearly 8 percent.

Iron ore prices could halve to as low as $70 this year as demand from China falls, according to UBS analyst Tom Price.

Goldman Sachs has cut its forecast for iron ore prices by up to 11 percent over the next three years due to excess supply and slower steel output in China.

The changing landscape has shifted the focus of investors to margins and profits from production numbers and led to top management changes in a number of commodities producers.

The newly installed chief executives of BHP and Rio Tinto are allocating little funding for new projects outside of iron ore and copper. In BHP's case new energy projects too are looked upon favorably.

So far this year, natural gas has been the best performing commodity after cold late-winter weather and above-average nuclear power plant outages in the United States pushed prices up more than 20 percent year-to-date.

BHP is calling on U.S. lawmakers to relax export restrictions on oil and gas and if that occurs it may be encouraged to accelerate U.S. output, according to analysts.

STORM-RELATED SETBACKS

On iron ore, BHP is likely to show a modest drop in output to around 40 million tonnes. Copper production, however, is seen rising.

Rio Tinto is expected to also reveal a seasonally affected slip in iron ore output -- down by as much as 10 percent to under 46 million tonnes. Iron ore made up 46 percent of the Anglo-Australian company's revenues in the half-year ended December.

Cyclone Rusty, which swept down the Pilbara iron belt coastline in late February, caused temporary closures of the Dampier, Cape Lambert and Port Hedland ports, which BHP and Rio Tinto rely on to export ore.

Despite the storm-related setbacks and dire price predictions, Rio Tinto insists it will meet its target of a 15 percent rise in output this year to 290 million tonnes. The June and September quarters are typically the strongest for iron ore production due to the lack of storm activity.

In fact, Rio Tinto, BHP and fellow Australian miner Fortescue Metals Group plan to add a combined 235 million tonnes of new mine capacity by 2015, nearly equal to Rio's total output in 2012.

At that rate, by 2018 Australia will be exporting 821 million tonnes, according to Australia's Bureau of Resource and Energy Economics -- a near-75 percent increase on exports of 470 million tonnes last year.

BHP Billiton
Rio Tinto
iron ore production

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