BHP Billiton Limited (ADR) (NYSE:BHP) and Commodity Prices
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 US1.91 billion result in the 12 months to June 30 compared to US13.83 billion a year earlier, as the prices of key commodities, including iron ore, coal and oil, plunged over the year.
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Underlying earnings — which exclude one-off writedowns — were down 52 percent to US6.4 billion, below analyst expectations.
BHP BILLITON closed up 1.530 at 33.710. Volume was 61% below average (consolidating) and Bollinger Bands were 19% wider than normal.
Open High Low Close Volume___
34.190 34.270 33.600 33.710 952,941
Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 36.02 39.18 44.62
Volatility: 56 46 40
Volume: 3,098,154 2,719,346 2,694,721
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
Summary
BHP BILLITON gapped up today (bullish) on light volume. Possibility of a Common Gap which usually coincides with a lack of interest in the security. Common Gaps are fairly irrelevent for forecasting purposes. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
BHP BILLITON is currently 24.4% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of BHP at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on BHP and have had this outlook for the last 3 periods.
BHP maintained its final dividend at 62 US cents per share, and said capital expenditure would fall from US11 billion in the 2014-15 financial year to US7 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 US28 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.
BHP Billiton PLC (BHP), incorporated on May 09, 1996, is an Australia-based mining company having interests in diversified natural resources. The Company mines, extracts and produce aluminium, coal, copper, iron ore, manganese, nickel, silver and uranium, and oil and gas. The Company extracts and process minerals, and oil and gas from its production operations located primarily in Australia, the Americas and Southern Africa. The Company’s assets, operations and interests are separated into five business units, Petroleum and Potash, Copper, Iron ore, Coal and Aluminium, Manganese and Nickel. The Company’s Petroleum and Potash Business comprises conventional and non-conventional operations and a potash project. The Company’s Copper business produces copper and related ores and minerals. The Company’s Iron ore business produces iron ore. The Company’s coal business produces multiple variants of coal. The Company’s Aluminium, Manganese and Nickel business is a producer of aluminium, manganese and nickel.
Petroleum and Potash
The Petroleum and Potash business includes exploration, development, production and marketing activities. The business has a resource base concentrated in the United States and Australia. The business’ core production operations are located in the US Gulf of Mexico, onshore US and in Australia. The business also has operations in Trinidad and Tobago, Pakistan, Algeria and the United Kingdom. The business produces crude oil and condensate, natural gas and natural gas liquids (NGLs). The business’ petroleum portfolio consisted of conventional oil and gas operations, as well as, unconventional shale business. The business’ total petroleum production during 2014 was 246 million barrels of oil equivalent (MMboe). The Petroleum and Potash business contributed 21.9% to the Company’s total revenues.
Copper
The Copper business produces copper, silver, lead, uranium and zinc. The business also markets copper, copper cathodes, lead and zinc concentrates and uranium oxide. The Company’s copper assets are largely located in Chile, while Australia and Peru also contributes significantly. The business’ total copper production during 2014 was 1,727 kilo tons. The Copper business contributed 20.5% to the Company’s total revenues.
Iron Ore
The Company’s Iron ore business produces iron ore. The business sells lump and fines products and pellets. The Company’s iron ore mines are located in Australia and Brazil. The business’ total iron ore production during 2014 was 204 metric tons. The Iron ore business contributed 31.6% to the Company’s total revenues.
Coal
The Coal business is a supplier of seaborne metallurgical coal and domestic energy coal in the countries where its mines are located. The Company’s coal assets are located in Australia, South Africa and the United States. The business produced 45 metric tons of metallurgical coal and 73 metric tons of domestic energy coal during 2014. The Coal business contributed 13.5% to the Company’s total revenues.
Aluminium, Manganese and Nickel
The Aluminium, Manganese and Nickel business is an integrated producer of aluminium, nickel and manganese ore and alloy. The segment’s assets are located in Australia, South Africa, Mozambique, Brazil and Colombia. The Company produced 5,178 kilo tons of alumina, 1,174 kilo tons of aluminium, 8,302 kilo tons of manganese ore, 646 kilo tons of manganese alloys and 143 kilo tons nickel during 2014. The Aluminium, Manganese and Nickel business contributed 12.4% to the Company’s total revenues.
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