Futures & Commodities

BHP says no recovery in iron ore, focuses on credit rating, not dividend

Carla Gottgens | Bloomberg | Getty Images

BHP Billiton flagged on Wednesday that it sees no recovery in iron ore or coal prices in the next few years while holding out hope for a rebound in copper and oil as the company fights a slump in earnings set to hit its long-protected dividend.

The top global miner reinforced bearish views on the sector which has been slammed by oversupply at a time when growth in China, the biggest metals consumer, has slowed down.

In a sign BHP may cut its dividend, ending a long held policy to maintain or increase its payout every year, BHP Chief Executive Andrew Mackenzie said in the company's quarterly production report that it was focused on defending its investment grade credit rating.

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"In this environment, we are also committed to protecting our strong balance sheet so we have the financial flexibility to manage further volatility and take advantage of the expected recovery in copper and oil over the medium term," Mackenzie said.

He made no mention of any recovery in iron ore or coal prices.

BHP is reeling as oil prices have slumped further than expected at the same time as its other products have plunged to multi-year lows. Average prices for its commodities slumped between 20 and 51 percent in the first half of its financial year compared to a year earlier, with crude oil the worst hit.

Like its peers, BHP has been ramping up production as it looks to cut costs per unit amid the price slump, which has only exacerbated the global oversupply.

BHP reaffirmed it expected to boost output of copper, coal and even petroleum in the year to June 2016, despite slashing the number of rigs at its U.S. shale fields amid the collapse in oil prices to 12-year lows.

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It trimmed its full-year forecast for iron ore by 10 million tonnes to 237 million tonnes, however, because of a dam burst at the Samarco joint venture in Brazil, where output has been suspended. BHP still expects to increase production in Western Australia.

BHP's oil and gas output, which sets it apart from other big miners, fell 5 percent to 60.2 million barrels of oil equivalent (mmboe). It maintained its full year petroleum output forecast at 237 mmboe, however, boosted by offshore production.

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BHP produced 57 million tonnes of iron ore in the December quarter.

Quarterly copper production fell 9 percent to 400,000 tonnes because of lower grades at the Escondida mine in Chile.

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