Commodity price slump hammers BHP Billiton's profits

GMT 07:47 2015 Tuesday ,25 August

Arab Today, arab today Commodity price slump hammers BHP Billiton's profits

Global mining giant BHP Billiton
Sydney - AFP

Global mining giant BHP Billiton Tuesday posted an 86.2 percent slump in annual net profit despite slashing costs, as a collapse in Chinese demand for key raw materials hit hard.

The US$1.91 billion result in the 12 months to June 30 compared to US$13.83 billion a year earlier, as the prices of key commodities, including iron ore, coal and oil, plunged over the year.

Underlying earnings -- which exclude one-off writedowns -- were down 52 percent to US$6.4 billion, below analyst expectations.

BHP maintained its final dividend at 62 US cents per share, and said capital expenditure would fall from US$11 billion in the 2014-15 financial year to US$7 billion by 2016-17.

The miner has been cutting jobs and trimming operating expenses in a bid to counter sliding commodity prices, and this helped offset some of the damage, but chief executive Andrew Mackenzie admitted uncertain times lay ahead.

"In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility," he said, with the price of steel-making commodity iron ore under pressure.

"And, while we remain confident in the long-term outlook for commodities demand as emerging economies continue to urbanise and industrialise, we have lowered our forecast of peak Chinese steel demand."

But Mackenzie added that this would "favour low-cost producers with economies of scale", such as BHP.

During the year, BHP spun-off non-core assets into a new independent company, South32, to help simplify its operations, and this impacted revenue.

South32 now operates assets including aluminium, coal, nickel, manganese, silver, lead and zinc, leaving BHP to focus on its most profitable core long-life operations -- iron ore, copper, petroleum, coal and potash.

South32 reported a maiden net profit on Monday of US$28 million for the year to June 30, and outlined a strategy focused on reining in costs and internal restructuring.

Fellow mining giant Rio Tinto posted an 82 percent slump in its first-half net profit earlier this month, with softer commodity prices also taking their toll.

It was a theme followed by Fortescue Metals on Monday, whose annual net profit slid 88 percent, with China's economic slowdown weighing heavily.

BHP, Rio, Fortescue and Brazil's Vale are the world's big four iron ore exporters, with weaker Chinese demand for the commodity impacting their bottom lines.

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