and of interest

BHP Billiton forecasts volatility in commodities as China controls lending
UPDATE: Sarah-Jane Tasker From: The Australian January 20, 2010 4:14PM Increase Text Size Decrease Text Size Print Email Share Add to Digg Add to del.icio.us Add to Facebook Add to Kwoff Add to Myspace Add to Newsvine What are these?

Strong: BHP Billiton recorded improved production at copper operations in Escondida, Chile. Source: Bloomberg
BHP Billiton has been boosted by strong price increases across its suite of products, but the world's largest miner remains cautious on the speed of global recovery.

Mining giant BHP, reporting its December-quarter production results today, said demand in China and restocking in the developed world had led to strong price recovery across the commodity suite during the quarter.

Going forward, the speed of recovery in the developed economies remains uncertain, particularly considering the eventual withdrawal of government stimulus, BHP said in its report.

In China, the impact of measures to control loan-growth will add another future variable. Consequently, we expect some degree of volatility in the short term outlook for our commodities.

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BHP added that most key indicators across the developed economies showed improvement during the December quarter, and government stimulus measures were supporting a gradual return to normalised global trade.

Shares in BHP Billiton late this afternoon were marginally higher, tacking on 18c (0.4 per cent) to $43.49.

The iron ore division reached records for production and shipments, which BHP said had been achieved through improvements in the rail and port infrastructure of the Western Australia Iron Ore Rapid Growth Project 4 (RGP4).

A strong result was expected from the mining major after Rio Tinto last week beat annual forecasts for iron ore and copper output.

Rio said most of its key commodities were recovering and iron ore had set a production record of 217 million tonnes, up 13 per cent on the previous year.

Iron ore production for BHP rose 11 per cent to 32.45m tonnes in the three months ended December 31.

For the half-year ended December 2009, 54 per cent of Western Australia Iron Ore shipments, on a wet metric tonne basis, were based on annually agreed pricing, and the remainder was sold on shorter-term reference pricing, BHP said.

The miner had said in July 2009 that it planned to sell about 30 per cent of its total iron ore volumes into a mix of quarterly negotiated pricing, indexed pricing and spot sales.

The spot price of iron ore is now trading about 90 per cent above the benchmark, which is expected to give the mining giants more power in negotiations for this year's contract talks.

BHP's ability to sell material at spot and indexed prices could also help boost earnings from the division.

The ramp up of RGP4 was continuing and full capacity was expected to be achieved by the end of 2011, BHP said.

Including RGP4, the full installed capacity across the Western Australia Iron Ore operations is 155 million tonnes per annum, BHP said.

Analysts said overall production across BHP's operations was strong in the second quarter and that the increase in spot and indexed sales of iron ore would boost earnings from the key division.

BHP said production records had also been set for petroleum, nickel and zinc. BHP's output of petroleum, its third-biggest earner, rose 16 per cent to 38.4m barrels of oil equivalent.

Uranium production from Olympic Dam was 60 per cent lower as repair work on the damaged main ore-transport shaft continued.

Copper production was down 12 per cent on year to 271,100 tonnes, due to the outage at Olympic Dam, and BHP maintained its guidance that operations at the mines damaged Clark shaft would restart this quarter.

But production was stronger for BHP's other copper assets, including its stake in Escondida in Chile, and the miner said it expected provisional copper pricing adjustments to boost earnings by $US467m ($505.3m) in the first half.

Coking coal output dipped 12 per cent to 8.9m tonnes due to planned maintenance at Queensland Coal and planned longwall moves at Illawarra Coal.

Nickel production for the quarter rose 20 per cent on year to 49,000 tonnes due to a record performance at the Nickel West business.

Also today, BHP approved $US240m of spending on the first stage of its Jansen potash project in Canada.

With additional reporting by Dow Jones Newswires