IB Net Payout Yields Model

What BHP Billiton Production Report Tells Us About Minerals

Always interesting to see what the major miners such as BHP Billiton (BHP) are producing and developing. Most noteworthy for BHP are the iron ore, met coal, and copper production figures from their 2nd half 2011 production report. All 3 commodities are in hot demand in China and BHP had all the incentive in the world to increase production in 2011 over 2010.

  • Iron Ore production increased 23% for the 2nd Half (2H). Production in Western Australia delivered a quarterly record. Full year production for 2012 is expected to increase. 
  • Met Coal production dropped 2% in the 2H over 2010. The December quarter did see a 9% increase over last year. No real prediction on 2012 production levels. 
  • Copper production dropped 16% for the 2H and 7% for the Dec quarter. Production is forecast to drop in 2012
These results are consistent with the general opinion that iron ore is relatively easy to mine while copper and met coal are much more difficult and hence will become much more valuable commodities as time progresses.

Naturally short term pricing will be dependent on a strong China economy and to a lessor extent on the recovery in the US. What lies ahead for the markets when both economic powers see strong demand at the same time will be interesting. Everybody seems to forget that US demand has been down since 2006 while China surged ahead. If demand increases in the US for housing and cars, serious pressure could be placed on the supply of copper and met coal.

Disclosure: Long ANR (met coal) and FCX (copper). Please review the disclaimer page for more details. 


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