BHP Billiton’s segments
It’s important to understand BHP Billiton’s (BHP) segments. It operates in petroleum and potash, copper, iron ore, coal, aluminium, manganese, and nickel.
Petroleum and potash
BHP’s petroleum business includes exploration, development, production, and marketing activities in more than 12 countries. Its petroleum portfolio expanded in 2011. It made a significant investment in the unconventional shale business with the acquisition of the Fayetteville shale area in Arkansas. The overall production for fiscal year 2013 (or FY13) was 235.8 million barrels of oil equivalent (or MMboe).
BHP’s copper business is headquartered in Santiago, Chile. It’s one of the world’s premier producers of copper, silver, lead, and uranium. It’s also a leading producer of zinc. The company markets five primary products—copper concentrate, copper cathodes, uranium oxide, lead, and zinc concentrates.
It sells lump and fines. Lump iron is between six and 30 millimeters in size. Anything below six millimeters is considered fines. Lumps have higher iron content than fines.
BHP gets product from Australia. It also gets pellets—produced by agglomeration and thermal treatment of raw ore—from its operations in Brazil.
BHP is the world’s largest supplier of seaborne metallurgical coal. Production of metallurgical coal in FY13 was 37.7 million tons (or Mt). Its main customers are in China, India, Japan, and Europe. The majority of its contracts are based on annual or longer-term volumes, with prices largely negotiated on a monthly, quarterly, or spot basis.
BHP is a major aluminium producer with total production of 1.2 Mt in FY13. Its main customers are located in western Europe and Asia. Aluminium’s demand is driven by end-use consumption in transportation, packaging, construction, and household items.
BHP is the world’s largest producer of manganese ore. It’s one of the top producers of manganese alloy. Approximately 80% of its ore production is sold directly to external customers in countries like China, South Korea, and India. These products are increasingly sold on short-term or spot contracts, with prices linked to published indices.
BHP supplies nickel primarily to customers in the stainless steel industry—mainly in northern Asia and western Europe. BHP is a major nickel producer with total production in FY13 of 154 kt of contained nickel. The company sells nickel products under a mix of long-term, medium-term, and spot volume contracts. BHP’s nickel prices are linked to the London Metal Exchange nickel price.
Downward cycles in commodities helps diversified companies like BHP Billiton (BHP), Rio Tinto (RIO), and Anglo American (or AAUKY). However, smaller and less diversified peers like Cliffs Natural Resources (CLF) and Fortescue Metals Group (or FMG) rely on one or two commodities. As a result, the smaller peers are more prone to cycles. Another way of gaining exposure to diversified metals is to invest in exchange-traded funds (or ETFs) like the SPDR S&P Metals & Mining ETF (XME).