The big Australian’s financial results for the six months to December 31 painted a picture of the end of the commodities super-cycle.
Revenue was up 16.6% to $US29.78 billion, while underlying earnings before interest, tax and amortisation were up 25% to $13.9 billion.
Attributable profit excluding exceptional items was up by 2% to $6.1 billion.
Still riding high prices, metallurgical coal was a big winner with revenue up 158% to $4.9 billion, and underlying EBIT up 497% to $3.1 billion, while energy coal revenues rose 50% to $4.3 billion and EBIT was up 287% to $1.07 billion.
For coal, BHP said the increase in underlying EBIT was mainly due to higher realised prices in the realm of 198% for hard coking coal, 233% for weak coking coal and 61% for thermal coal.
While coal results were strong, these are expected to be much lower in the next six-month period as benchmark prices are renegotiated downwards and BHP added it has received some requests for shipment deferrals for both metallurgical coal and iron ore.
Talking on the seaborne metallurgical coal market this morning, BHP chief executive officer Marius Kloppers said any reduction in demand – from Japan, Korea, Taiwan and in Europe or Brazil – reduced the coking coal market absolutely. He said as the market leader BHP had no choice but to reduce the amount of coking coal it produced when demand slowed because customers simply had nowhere to keep excess production.
“In met coal we haven’t yet seen that destocking complete … and those events still have to be manifested in the market,” Kloppers said, warning there was more volatility coming in the commodity as prices dropped back down to marginal cost levels.
While BHP enjoyed strong revenue from coal in the first six months of the financial year, higher royalty costs stemming from the introduction of a two-tier royalty structure in Queensland from July cost $82 million while flooding in the state hurt the miner to the tune of $122 million.
BHP attributed other higher operating costs in the met coal division to inflation, an extended changeout at its Dendrobium longwall mine and “longwall discontinuity” at its Appin longwall mine in New South Wales.
For energy coal, BHP credited the rises in EBIT not only to higher export prices but to favourable exchange rate impacts on costs and record production from Hunter Valley Coal in NSW and Cerrejon Coal in Colombia.
BHP’s other bulk commodity, iron ore, also performed well, up by 68.3% to $6.02 billion and underlying EBIT up 147% to $4.14 billion, reflecting a higher benchmark for the period.
The strength of coal and iron ore though was offset by exceptional items, most notably the costs from its shutdown of the Ravensthorpe nickel laterite mine in Western Australia.
BHP is now facing an impairment charge and increased provision for rehabilitation at the operation of $US3.36 billion.
Other exceptional items included $356 million for withdrawing from the Suriname operations, cessation of mining at Pinto Valley and the write-down of a mineral sands resource in Mozambique, along with $508 million for the rehabilitation of the Newcastle steel works.
The miner said while the global economy had deteriorated “at an unprecedented rate, taking most observers by surprise”, it continued to have a positive long-term outlook.
“We expect emerging economies’ long-term growth to be robust as they continue on the path to urbanisation and industrialisation,” the company said.
One silver lining for BHP was weaker local currencies against the US dollar, which buffered the impact of falling commodity prices.
However, the miner said it expected commodity prices would be volatile and weak for some time to come.
Shares in BHP were last trading at $30.20, up 42c this morning.
