BHP says floods knock coal output, iron ore hits record

SYDNEY, Jan 20 （Reuters） - BHP Billiton on Thursday warned Australia's devastating floods will impact on its coal mining operations for at least another six months, with production already down nearly a third in the last quarter in hardest-hit Queensland state.

BHP Billiton, the world's biggest mining company, also posted a 4 percent rise in quarterly iron ore output to record levels to meet swelling demand from its main customers in China and other parts of Asia.

At its current production rate of 144 million tonnes a year, BHP Billiton would still only produce one-tenth of the consumption of iron ore in China alone.

In a joint venture with Japan's Mitsubishi Development Pty Ltd, BHP Billiton is the world's largest supplier of sea-borne traded hard coking coal, needed to make crude steel.

"Queensland Coal （Australia） production was significantly affected by the persistent rain and flooding that impacted the Bowen Basin during the period," BHP Billiton said, adding output of coal dropped 30 percent versus the previous quarter.

The statements were the most detailed publicly on the effects of the floods on the company's collieries since the rains started in November, leading BHP and other miners to postpone shipments and make force majeure declarations to break sales contracts.

"Until now there wasn't a peep from BHP about water and flooding and rain or anything in Queensland," said Andrew Harrington, a mining analyst for Patersons Securities in Sydney.

"It's obvious now that this flooding has had an enormous affect on its coal business," Harrington added. "I would expect coking coal prices to go up on this, if only temporarily until the lost production can be made up down the line."

BHP Billiton confirmed that force majeure was declared for the majority of Bowen Basin coal, including at its Goonyella Riverside, Peak Downs, Norwich Park, Gregory Crinum, South Walker and Blackwater operations.

Meteorologists say the rains that devastated huge areas of Australia's eastern seaboard, flooded coalfields and cut off shipment corridors for miners clustered in the inland Bowen Basin were triggered by a La Nina Pacific weather pattern, that only recently peaked and threatens more wild weather.

"When combined with disruption to external infrastructure, we expect an ongoing impact on production, sales and unit costs for the remainder of the 2011 financial year," BHP Billiton said in releasing its fiscal second-quarter production data.

The wet weather has driven long-term pricing for coking coal as high as $225 per tonne for the first quarter of 2011, and some analysts say that the floods could result in coal prices between $400 to $500 per tonne.

RECORD IRON ORE OUTPUT

Iron ore is expected to account more than $5 billion in first-half earnings for Melbourne-based BHP Billiton, nearly three times forecast EBIT earnings from coal mining.

Analysts expect BHP Billiton to show underlying earnings of around $10 billion for the half-year ended Dec. 31.

Spot iron prices .IO62-CNI=SI are trading at 8-month peaks and prices for copper , also a BHP staple, are at record highs.

Rival Rio Tinto on Tuesday also reported record iron ore production after running its mines at peak rates in 2010.

"For the likes of BHP and Rio Tinto, iron ore is where the money is right now," said Keith Goode, an analyst for Eagle Mining Research.

The sharper-than-expected fall in coal output and lower copper prices overnight helped drive BHP's shares lower.

BHP Billiton shares fell nearly 2 percent to A$45.15, after the data was released, while close peer Rio Tinto was down as much as 2.3 percent to $85.57, outpacing losses in the wider market .

Aluminium production was in line with previous comparable quarters, BHP Billiton data showed.

Aluminum prices , which slumped dramatically during the global recession, rose 11 percent last year -- 5 percent in the December quarter alone -- and are now near a two-year peak.

DEVELOPING ECONOMIES DRIVE DEMAND, U.S. RECOVERING

BHP Billiton also warned that permitting delays in the Gulf of Mexico were continuing to impact its petroleum division by causing the 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," it said.

The company's Australia iron ore shipments rose to an annualised rate of 148 million tonnes a year in the quarter, underscoring a growing global appetite for the steelmaking material, particularly in China and other Asian countries fast industrialising.

"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," BHP Billiton said.

Existing supply side constraints on industrial commodities has been further exacerbated by weather-related disruptions in Australia, Colombia, South Africa and elsewhere, according to the company.