BHP half-year reflects strong demand for steelmaking materials

The group’s profit was down 7 per cent on the $6.1 billion in the previous corresponding period but at US$5.7 billion (A$6.55 billion) was at least US$600 million higher than the market expected.
Strong sales volume growth on the back of demand recovery, particularly in the steelmaking raw materials (iron ore, metallurgical coal and manganese) and good cost control across the business helped to partially offset the negative impacts of lower prices and stronger producers’ currencies.
“Commodity prices recovered during the December 2009 half-year, however realised prices for most of our products were lower than the prices achieved during the December 2008 half-year. The strength of operating currencies against a weak US dollar also negatively impacted costs,” BHP’s report stated.
Solid volume growth was achieved from good operating performance and the ramp up of new projects. BHP continued to invest throughout the cycle, with three major projects commissioned and one project sanctioned during the period.
The miner has replenished its growth pipeline and since December 2009 has announced further capital approvals of US$2.7 billion.
Attributable profit increased by 134.4 per cent to US$6.1 billion due to the reversal of impairment charge for Ravensthorpe as well as a number of exceptional items reported in the prior period. Exceptional items reported in the prior period include costs associated with portfolio rationalisation, impairment of assets and increased rehabilitation provisions for Newcastle steelworks (Australia).
“The restructuring of the nickel portfolio is now complete, leaving us with a stronger and simpler nickel business,” said BHP’s report.
Despite what it sees as improved global economic conditions, BHP Billiton remains “cautious about the speed and strength of the global economic recovery across the developed world.”
“It appears that stimulus measures that supported the recovery have not fully addressed structural issues such as weak labour markets and excess production capacity in developed economies,” said the report.
A further variable will be the impact of any measures to control loan growth in China, said Kloppers.
Physical demand for bulk commodities continues to be very strong in most regions following the aggressive destocking during the economic downturn. However real end demand for metals still appears sporadic, BHP reported.
In other news, BHP Billiton announced the appointment of Chris Campbell as President of its iron ore business, replacing Ian Ashby who will become the CEO of the Western Australia Iron Ore production joint venture with Rio Tinto.
Campbell's appointment is expected to become effective as Ashby's workload in the JV increases, which is expected to occur progressively over the coming months.
Since June 2009, Campbell has been leading the BHP Billiton Project Office for the Western Australia iron ore production joint venture with Rio Tinto, with responsibility for co-ordinating the delivery of the joint venture and preparing for the integration of the businesses for BHP Billiton.