BHP’s Profit Drops on Lower Output, Higher Costs

BHP Billiton, (NYSE:BHP) the world’s biggest mining company posted a smaller profit in the most recent six-month earnings cycle for the first time since 2009.  Slowing demand out of Europe and industrial demand out of China put pressure on metals prices which, along with production interruptions which lowered output and raised costs, contributed to the miss by BHP.  Copper, for example had been pummeled to as low as $3.00 per pound last fall.  The price has since recovered, closing today at $3.87.

With a CapEx budget over the next five years of more than $80 billion to raise output of coal, and iron and copper ores the Melbourne, Australia based BHP is bullish going forward but with obvious reservations if the situation in Europe spreads to other markets.  With the general recovery in metals prices, though, it is hard to not be bullish on commodity producers in general.  BHP will pay a $0.55 per share dividend this year, up from the $0.46 dividend in 2011.

“We expect volatility in commodity markets to persist as the European sovereign debt crisis and general weakness in the manufacturing and construction sectors across key markets are expected to weigh on customer behavior and sentiment,” BHP said in the statement. “We expect underlying demand growth rates to remain robust, so long as the macroeconomic policy setting of the developing world retains a growth bias.”

What is obvious is that while the West struggles with the storm of debt servicing that is sweeping through their economies, demand in emerging markets continues mostly unabated.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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