BHP sees rebalance in oil, gas markets
BHP Billiton saw signs commodity markets were rebalancing, with oil and natural gas best placed to deliver gains into 2018.
“Fundamentals suggest both oil and gas markets will improve over the next 12 to 18 months,” the chief executive Andrew Mackenzie said yesterday in the company’s first-quarter production report. “Iron ore and metallurgical coal prices have been stronger than expected, although we continue to expect supply to grow more quickly than demand in the near term.”
BHP joins Rio Tinto Group in expressing increased optimism on the outlook for commodities amid continued strong demand in China, the top consumer. Raw materials would probably see a broad-based recovery next year after an expected strong performance in the final quarter of this year on improving demand, according to Barclays.
With long-life assets in oil and copper, BHP was well positioned to benefit as markets rebalanced, said David Lennox, a resources analyst at Fat Prophets. Higher oil prices would also help offset forecast lower volumes in fiscal 2017 in the petroleum division, he said.
The Bloomberg Commodity Index surged about 85percent since it neared a 13-year low in January.
Iron ore has gained 34percent this year, while oil advanced about 14percent since Opec last month agreed to the outline of a deal that would cut production.
BHP’s full-year copper guidance of 1.66million tons was under review following a twoweek long power cut in South Australia that halted output at its Olympic Dam mine, the com- pany said. The stock slumped 0.8percent to close at A$22.47 (R239) in Sydney trading.
“We are not sure if there will be additional impacts to Olympic Dam’s performance over the next couple of quarters, or potentially higher sustaining capital expenditure,” said Adrian Prendergast, an analyst at Morgans Financial.
Copper output in the three months to September 30 declined 6percent to miss estimates on lower grades at Chile’s Escondida and amid maintenance work and the power outage at Olympic Dam. Petroleum and iron ore output beat analyst estimates, even as the units posted declines on the same period a year earlier.
Olympic Dam should resume some copper production from next week and be at its normal output capacity about a week later, the mine’s asset president Jacqui McGill said yesterday. The mine would not have capacity to make up for lost production, she said. “We are not producing copper at this point in time. It takes a while to build up inventory and then to produce it.”
The power outage might result in a 16000 ton to 25000 ton cut to annual copper cathode production at the mine, Morgan Stanley analysts including Menno Sanderse said in a note to clients. The estimate was a “little high”, McGill said.
BHP maintained full-year guidance for petroleum output of between 200million and 210 million barrels of oil equivalent and for total iron ore production in Western Australia of between 265million and 275million tons. – Bloomberg