BHP Billiton recorded an 86.2% profit plunge this week in its FY 2015 report, down USD1.91 billion.
Following on similar profit slumps from miners Rio Tinto and Fortescue earlier this month, the company blamed the fall on lower commodity prices. However, it remained upbeat on weathering the storm, as Australia’s share of Chinese imports rose 64% in the first half of this year.
“This back drop will favour low-cost producers with economies of scale,” CEO Andrew Mackenzie said in a webcast posted on 27 August. “Cycles are part of our industry. We will only approve projects when the time is right.”
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BHP capital and exploration expenditure decreased by 24% to USD11 billion over the year and was expected to decline to USD8.5 billion in the FY 2016.
“In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility,” Mackenzie said.
However, the company remained confident in the long-term outlook for commodities demand, forecasting Chinese steel production would peak between 935 million and 985 million tonnes in the mid-2020s.
Demand for iron ore and metallurgical coal were mitigated in the medium term by lower scrap availability, according to BHP.
Outside China, steel production growth was improving steadily driven by India, the Middle East and Southeast Asia. However, thermal coal demand had weakened, limiting prospects for price recovery in the near term.
Meanwhile, Mackenzie described productivity improvements and cost reductions as outstanding, with the company set to reduce iron ore unit costs by 20% to USD15/tonne by FY 2016.
Chief Financial Officer Peter Beaven announced iron ore cash costs had declined 31% to USD17 a tonne this half.
“The quality of our ore bodies in the Pilbara, their concentrated position cannot be replicated,” he said.
The big two iron ore producers have been under intense criticism from iron ore juniors, foremost Fortescue’s Andrew Forrest, of late for flooding the market during an iron ore glut and driving down prices. However, according to last week’s banchero costa weekly market report, the gambit has helped Australia take a majority share in China imports.
“Australia has actually been the clear winner of the recent iron ore price wars,” it reported. “Australia’s share of Chinese imports increased to an astounding 64% in the first half of this year, up from 56% in the same period in 2014, and 50% in 2013.
“In volumes terms, this means that Australia exported 291 million tonnes to China in 1H2015, up 13.7% from the 256 million tonnes of 1H2014, and 51.6% more than the 192 million tonnes of 1H2013.”