World’s Top Miner Sees Signs of Commodities Recovery

(Bloomberg) -- BHP Billiton Ltd., the world’s biggest mining company, sees early signs that commodity markets are rebalancing, with oil and natural gas best placed to deliver gains into 2018.

“Fundamentals suggest both oil and gas markets will improve over the next 12 to 18 months,” Chief Executive Officer Andrew Mackenzie said Wednesday in the company’s first-quarter production report. “Iron ore and metallurgical coal prices have been stronger than expected, although we continue to expect supply to grow more quickly than demand in the near term.”

BHP joins Rio Tinto Group in expressing increased optimism on the outlook for commodities amid continued strong demand in China, the top consumer. Raw materials will probably see a broad-based recovery in 2017 after an expected strong performance in the final quarter of this year on improving demand, according to Barclays Plc.

With long-life assets in oil and copper, BHP is well positioned to benefit as markets rebalance, said David Lennox, a resources analyst at Fat Prophets in Sydney. Higher oil prices would also help to offset forecast lower volumes in fiscal 2017 in the petroleum division, he said.

The Bloomberg Commodity Index has surged about 19 percent since it touched a low in January. Iron ore has gained about 34 percent this year, while oil has advanced about 14 percent since the Organization of Petroleum Exporting Countries last month agreed the outline of a deal that would cut production for the first time in eight years.

BHP’s full-year copper guidance of 1.66 million tons is under review following a two-week long power cut in South Australia that’s halted some output at its Olympic Dam mine, the company said. The stock slumped 0.8 percent to close at A$22.47 in Sydney trading, trimming its advance this year to 26 percent.

“We are not sure if there will be additional impacts to Olympic Dam’s performance over the next couple of quarters, or potentially higher sustaining capital expenditure,” Adrian Prendergast, a Melbourne-based analyst at Morgans Financial Ltd., said by phone. “There’s maybe some concern around that.”

Copper Outlook

Copper output in the three months ended Sept. 30 declined 6 percent to miss estimates on lower grades at Chile’s Escondida and amid both maintenance work and the power outage at Olympic Dam. Petroleum and iron ore output both beat analyst estimates, even as the units posted declines on the same period a year earlier.

Olympic Dam should resume some copper production from next week and be at its normal output capacity about a week later, the mine’s asset president Jacqui McGill said Wednesday in a phone interview. The mine, estimated to produce about 200,000 tons this fiscal year, won’t have capacity to make up for lost production, she said.

“We are not producing copper at this point in time,” McGill said by phone.“It takes a while to build up inventory and then to produce it.”

The power outage, caused after storms hobbled the state’s transmission network, may result in a 16,000 ton-to-25,000 ton cut to annual copper cathode production at the mine, Morgan Stanley analysts including Menno Sanderse said in a note to clients. The estimate is a “little high,” McGill said.

BHP maintained full-year guidance for petroleum output of between 200 million and 210 million barrels of oil equivalent and for total iron ore production in Western Australia of between 265 million and 275 million tons.

The producer’s iron ore output in the three months ended Sept. 30 fell 6 percent to 57.6 million metric tons after a halt to Brazil’s Samarco joint venture following November’s deadly tailings dam spill. That compares with 61.3 million tons a year earlier, which included output from Samarco, and beat the 56.6 million tons median estimate of five analysts surveyed by Bloomberg.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net. To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Keith Gosman