BHP Says India Steel Growth to Boost Coking Coal Outlook

22 June 2016

BHP Billiton Ltd., the world’s biggest exporter of coking coal, sees long-term demand growth for steel-making ingredients supported by rising output in emerging economies led by India.

The company lifted its coking coal production guidance for fiscal 2016 by 7.5 percent, forecasting rising steel output in India and continued growth from China into the next decade, according to a presentation Tuesday.

“The developing world needs steel, steel needs coking coal, and we have the strongest resource position in the seaborne market,” Mike Henry, president of operations of BHP’s Minerals Australia unit, said in a statement. The producer will seek to cut costs by as much as 20 percent and target $600 million of productivity gains over the next year as it also boosts output, he later told reporters on a conference call.

Rising steel production capacity in emerging economies will support coking coal prices over the medium term, with India’s imports forecast to rise 8 percent a year through 2021, Australia’s Department of Industry, Innovation and Science said in a report published in April. Global trade will grow about 3 percent a year through 2021, according to the department.

BHP declined 1 percent to A$18.68 at 12:33 p.m. in Sydney trading, trimming its advance this year to 5 percent.
Spot prices of hard coking coal have rallied 20 percent from a February low as three years of production cuts have helped to curb a glut and position the export market closer to balance than other commodities in oversupply. BHP sees some signs of a supply response to weak coking coal prices, Henry told reporters on the call.

BHP raised guidance for production of coking coal in the 12 months to June 30 to 43 million metric tons, from an April estimate of 40 million tons, it said in the presentation. Output will be 46 million tons in fiscal 2018.

The producer is also targeting a 20 percent reduction in production costs at its Queensland coking coal division to $52 a ton, and a 9 percent fall to $38 a ton at its thermal coal operations in New South Wales, according to the presentation.

BHP revised down its forecast for full-year output of thermal coal, used in power stations, to 34 million tons, from an earlier estimate of 37 million tons. Demand for the material will remain resilient for decades, Henry told reporters.

Coal Acquisitions

BHP, the world’s biggest miner, is among final bidders for Anglo American Plc’s stake in the Moranbah North mine and its wholly-owned Grosvenor operation in Queensland’s Bowen Basin, close to existing BHP operations, people with knowledge of the matter said earlier this month.

“It’s always going to be incumbent on us to consider opportunities that come up,” Henry said on the call, while declining to comment specifically on whether BHP is reviewing the Anglo assets, or other mines. “Anything that we were going to pursue in terms of bolt-on growth would need to be consistent with the success of the past couple of years, it would need to enable higher returns and it would need to be resilient to all markets.”

BHP produces coking coal in Queensland’s Bowen Basin region in separate joint ventures with Mitsbushi Corp. and Mitsui & Co. The producer’s operations could win potential gains in blending, freight and infrastructure with the addition of Anglo’s assets, Sanford C. Bernstein & Co. analysts including London-based Paul Gait said in a June 15 note.

“Potentially leveraging off existing infrastructure they’ve got and consolidating operations absolutely can underpin better returns,” Adrian Prendergast, an analyst at Morgans Financial Ltd. in Melbourne, said by phone.

Earlier this month, BHP agreed to sell its stake in the Haju mine in Indonesia to project partner PT Adaro Energy. The producer also has thermal coal assets in Australia, Colombia and the U.S.


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