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BHP cuts China steel forecast as profits plunge

Aug 25 2015 12:02
David Stringer and Jesse Riseborough

(Shutterstock)

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BHP BILLITON PLC [JSE:BIL]

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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

GLENCORE PLC [JSE:GLN]

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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Melbourne - BHP Billiton [JSE:BIL] , the world’s biggest mining company, said full-year profit plunged 52% as commodity prices tumbled and cut its long-term forecasts for steel demand and output in China, its largest customer.

Underlying profit was $6.4bn in the year ended June 30 from $13.3bn a year earlier, Melbourne-based BHP said on Tuesday in a statement.

The figure excludes the contribution of a collection of assets divested into spinoff South32, which began trading in May. BHP will increase its dividend by 2.5% to $1.24 a share, it said.

Supply gluts and forecasts for the slowest growth since 1990 in China, the largest buyer of metals and energy, have sent the price of raw materials plunging and punished mining company profits.

BHP on Tuesday lowered its forecast for Chinese peak steel demand and expects subdued output for the rest of this year as the construction sector slows.

“They are in pretty good shape for a negative or bearish commodity cycle which we are very plainly in now, which may have further to play out,” Ric Spooner, a chief market strategist at CMC Markets Asia Pty, said by phone from Sydney.

Economic reforms

BHP rose 2% at the close in Sydney trading on Tuesday to A$23.34, trimming its decline this year to 15%.

“In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility,” Chief Executive Officer Andrew Mackenzie said in the statement.

“While we remain confident in the long-term outlook for commodities demand as emerging economies continue to urbanize and industrialize, we have lowered our forecast of peak Chinese steel demand.”

Crude steel production in China will fall to between 935 million metric tons and 985 million metric tons in the mid 2020’s, the company said. BHP had said in May it expected China’s steel output to reach as much as 1.1 billion tons by the middle of the next decade.

The largest mining companies have been wrong-footed on slower growth in China, Glencore [JSE:GLN] CEO Ivan Glasenberg said last week, with demand “getting very tricky to call.”

Rio Tinto this month reported underlying profit fell 43% in the six months through June, while Fortescue Metals Group said on Monday full-year net income slumped 88%.

BHP’s profit after tax and excluding exceptional items was $7.1bn, from $13.4bn a year earlier, the company said in the statement. That missed the $7.5bn average of 22 analysts’ estimates compiled by Bloomberg.

Net income fell 86% to $1.9bn in the 12 months through June, from $13.8bn a year earlier. That was the lowest since 2003, the company confirmed in an email.

bhp billiton  |  glencore  |  china  |  mining  |  steel
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