BHP Billiton (BHP) Tuesday unveiled a weak first quarter production report, which analysts said points to a sluggish response to the China-driven surge in demand.
While the report was in line with market forecasts, some analysts started making minor adjustments to their profit forecasts. Among the bigger falls, copper output was 19% lower than in the first quarter of 2005/06 due to industrial action at the Escondida mine in Chile while petroleum output eased 4% at a time of high prices.
Zinc production dipped 18% and lead by 25%. Uranium production was down 27% due to a planned shutdown at the Olympic Dam smelter in South Australia.
Iron ore output was 5% above the first quarter of last fiscal year but 4% below the June quarter as work on expansion in Australia's Pilbara region interfered with production.
While BHP said most of its development projects are on schedule and budget, tight labor markets and shortages of equipment continue to have an impact across the industry.
"These issues are particularly acute in Western Australia and the Gulf of Mexico and continue to impact costs and schedules," the world's largest mining company said.
Macquarie resources analyst Brendan Harris said those pressures and the muted supply response are a common theme in recent production reports by mining companies.
"In the quarterlies across the board you are going to see weak volumes and that is why prices are high – you can't have one without the other," he said.
Harris said BHP investors should not be deterred by the lack of volume growth as prices were the real driver.
"Anyone who is buying these companies on volume growth today is completely missing the point," he said.
Some BHP operations did boost output in the first quarter with aluminium reaching record levels and alumina and coking coal higher. Nickel output edged up 1% as production at the Yabulu operation in Queensland made up for an uninspiring performance from the Nickel West assets that were part of the WMC Resources portfolio until it was taken over by BHP last year.
ABN Amro said while it was not a good quarter for BHP, the weakness won't be repeated in the second quarter.
"Like the Rio Tinto Ltd. (RTP) result, it highlights how tight the mining industry is and how difficult it has become for the supply side to respond," the Dutch investment bank said in a note to clients.
Rio Tinto's third quarter copper production was also hit by the strikes at Escondida, in which it holds a 30% stake, but its iron ore output rose to record levels as recent Pilbara expansions kicked in.
Morgan Stanley analyst Craig Campbell said BHP's production is in line with his forecasts and will only lead to about a 1% drop in his full year earnings estimate.
Campbell said miners are running their operations at full capacity to take advantage of high commodity prices and it was difficult to undertake growth projects at the same time.
"Supply is clearly stretched in some areas, particularly in base metals, and that is one of the reasons we are forecasting a 15% increase in iron ore contract prices," he said.
Analysts expect BHP to post a record profit of more than US$12 billion in 2006/07, up from the US$10.45 billion last year.
豫公网安备41010502003434号