Miner BHP Billiton reported lower iron ore and coal production costs in Australia for July-December 2015, as it warned of persistent low prices on cost trends and supply pressures for the time being.
BHP cut by 4% iron ore production guidance for its 2016 financial year to 237 million mt owing to losses from Samrco unit, with an update pending for Australia following weather disruption in January. Metallurgical coal production guidance was unchanged at 40 million mt.
Western Australia Iron Ore unit cash costs declined by 25% to $15/mt and Queensland Coal by 17% to $59/mt, during the company's fiscal first half ended December 31 from the corresponding period, it said in an earnings statement.
BHP also mines thermal coal in New South Wales and from Cerrejon in Colombia.
BHP reported first metallurgical coal production from the Haju mine in Indonesia over the period.
BHP continues to expect full-year costs to remain at $15/mt for iron ore and cut to $59/mt its full-year projection for Queensland Coal, which produces a majority of coking coal.
Sales over July-December of iron ore averaged at $43/wet mt FOB basis, with coking coal at $82/mt FOB and weak coking coal at $67/mt FOB.
BHP's global coal business unit swung to a H1 EBIT loss of $342 million, while iron ore's profitability shrunk to less than a fifth of to a H1 EBIT of $747 million.
Iron ore prices will "likely remain low," due to weak demand and what BHP called abundant seaborne iron ore supply.
"Over time, additional low-cost seaborne supply will continue to displace higher-cost supply, and we expect productivity gains will continue to be an industry feature. These factors point to a prolonged period of market rebalancing," it said.
BHP holds its view that Chinese crude steel production to peak between 935-985 million mt around 2025. However, the country may show weaker immediate trends, with crude steel output at 803.8 million mt, and forecast by Platts to drop by 2.5% in 2016.
"In the short term, Chinese steel demand is expected to remain soft, with modest potential improvement if construction and infrastructure activity ramp-up in the first half of the 2016 calendar year," BHP said. "In metallurgical coal, industry-wide supplier cost compression is expected to persist through the 2016 calendar year, with recent devaluations in China's currency highlighting a key uncertainty for seaborne demand as imports become relatively more expensive."
BHP added it expects "further growth in low-cost, premium hard coking coal supply to offset production cuts and constrain potential for near-term price recovery."
"In the long term, we expect emerging markets such as India to support seaborne demand growth, while high-quality metallurgical coals will continue to offer steel makers value-in-use benefits to their operations."
