port hedland port may expand with china's help, page-37

2011 2012 should be a steller year IMO...

Profit surge in iron ore and coal expected to continue

Sarah-Jane Tasker | August 13, 2009

BHP Billiton's profit surge in its iron ore and coal divisions is expected to continue, with the world's largest miner confident the recent increase in demand for its products will continue.

The commodity price slump hit the miner's net profit hard but it was its iron ore and metallurgical coal divisions that again enjoyed a jump in earnings.

Chief executive Marius Kloppers said the company was pleased to report production in its metallurgical coal division was virtually unchanged on a year-on-year basis.

"Our long-term view has always been that these developing economies, particularly India and China, overwhelm their natural endowment base, so we positioned ourself for that some time ago," he said.

He added that Brazil, India and China are going to be strong markets for the miner.

"In terms of our numbers, effectively our operations over the last period have been running close to capacity," Mr Kloppers said.

China has turned off some of its domestic coal supply but there is concern it could turn it back on if prices keep increasing and have an impact on the recent surge in demand that has benefited BHP's exports into the economic powerhouse.

But Mr Kloppers seemed confident the level of demand would continue. He said the company views China as a large and sustainable market for metallurgical coal over time.

In metallurgical coal, underlying EBIT jumped 402.8 per cent to $US4.711bn. The company said the increase was mainly due to the higher realised prices for hard coking coal (125 per cent), weak coking coal (121 per cent) and thermal coal (17 per cent).

Its other bulk commodity, iron ore, reported an underlying EBIT of $US6.229bn, an increase of 34.5 per cent. This was mainly driven by higher average realised prices, which increased the underlying EBIT by $US939million, it said.

The company added that 68 per cent of west Australian iron ore shipments, on a wet metric tonne basis, were based on annually agreed pricing.

Mr Kloppers would not be drawn on what the split between contract and spot sales would be, as the miner has made no secret it favours an index-based system.

"I can't go beyond general comments that markets tend to go towards more transparency over time," he said. "Five years ago we first started talking about that; iron ore seems to be starting to make the transition to more transparency."

Chinese production has scaled back as it was cheaper for steel mills to import ore but there are concerns similar to those about coal, that local producers could reopen and constrain any further increase in the spot price.

"We have a view that the domestic iron ore production in China is linked to the seaborne market and that really forms one market, with the marginal limit of production generally coming from domestic Chinese sources," Mr Kloppers said.