While BHP Billiton says it achieved record iron ore production and shipments in the first half of the financial year, the impact of the wet weather and floods in central Queensland will continue to batter its coal business for the rest of the 2011 financial year.
The company revealed yesterday that coal production has been significantly affected by Queensland’s rain and floods.
It also warned about rising cost pressures, especially in Australia and South Africa and revealed that it lifted spending on two oil and gas projects in bass Strait by more than $US1.7 billion because of higher costs and technical problems.
In its December quarterly and half year production report, released yesterday, the company warned that because of the effects of water in mine pits, combined with disruption to external infrastructure, it expects ongoing impact on production, sales and unit costs for the remainder of 2010/11.
The impact of Queensland’s extreme weather continues to be assessed, and BHP confirmed it had declared force majeure over the majority of its Bowen Basin products, including Goonyella Riverside, Peak Downs, Norwich Park, Gregory, Crinum, South Walker and Blackwater.
The impact could have been worse if BHP and its partner, Mitsubishi had not undertaken work after the bad flooding in early 2008.
"The decision to increase pumping and drainage capacity following severe wet weather in the March 2008 quarter has minimised inpit water accumulation, although heavy rainfall that persisted for much of the December 2010 half year has significantly restricted overburden removal," BHP said yesterday.
The market took fright at the warning and lopped around 1.8%, or 86c off the BHP share price. The shares ended the day at $45.19, after falling to a low of $45.15 immediately after trading started in the morning.
BHP said it remained confident in the fundamentals of its core products, with supply side constraints that have been exacerbated by weather-related disruptions in Australia, Colombia and South Africa.
"Robust growth in developing economies remains the primary driver of commodity demand and further positive signs are emerging in the United States following the Federal Reserve’s ongoing efforts to stimulate the economy," the company said in a statement.
BHP said 33.7 million tonnes of iron ore were produced in the three months to December 31, taking first half production to 65.6 million tonnes, up 5% from the previous corresponding period.
Shipments of Western Australia iron ore rose to an annualised rate of 148 million tonnes per annum during the second quarter, it said.
Like Rio Tinto BHP produced and sold as much iron ore as it could from WA to take advantage of a strong market and rising prices, thanks to production and export constraints from India, the number 3 global exporter.
In fact world iron ore prices touched a new high of $US185 a tonne, including freight on Wednesday, according to price provider Platts.
Excluding freight charges, the price for WA 62%Fe ore was $US177.90 a tonne. Prices excluding shipping are used in the indexes that underpin the new quarterly pricing system for iron ore.
The Financial Times said the "previous peak was set in April 2008 just above $205 a tonne. But back then freight costs were much higher – at about $30 a tonne, compared with $6.50 a tonne – now, leaving the price of the commodity free-on-board at $175 a tonne."
Coking coal prices are around $US285 a tonne on a spot basis and thermal coal is around $US235 a tonne, both well above quarterly contract prices.
The company’s Queensland coal business was affected by persistent rain in December, which saw Queensland coking coal production fall by 30% from the September quarter.
Queensland coal sales were down 15% per cent, as a "relatively healthy level" of inventory held in the company’s supply chain at the beginning of the second quarter protected the company from the full impact of the slump.
BHP’s metallurgical coal production for the December quarter was 7.8 million tonnes, down 12% from the previous corresponding period.
Production was 33.7 million tonnes in the three months ended December. 31, from 32.5 million tonnes a year earlier,.
First half coking coal production was 18.1 million tonnes, down 1% from the previous corresponding period in 2009-10.
BHP’s petroleum production in the six months to December was flat compared to the previous corresponding period, with 80.3 million barrels of oil equivalent (BOE).
Permit delays in the Gulf of Mexico affected petroleum operations, as it caused a deferral of drilling of high volume production wells.
‘‘Our current expectation is that production volumes for the 2011 financial year will be in line with the 2010 financial year,’’ BHP said.
First half liquefied natural gas production was down one per cent on the previous corresponding period, with strong production from Australia’s north west shelf offset by flooding in Pakistan, while there was a steeper average decline in seasonal demand in eastern Australia.
Base metals production was higher in the half, compared with the corresponding prior period, except for zinc.
Copper production in the December quarter was up 11% at 302,000 tonnes and 7% versus the December 2-009 half year at more than
