Mixed production results
BHP’s (BHP) alumina production was broadly unchanged in the December 2014 half year at 2.6 million tons, including record production at the Alumar refinery. BHP aluminum production declined by 16% in the same period to 517 kilotons. The decline reflects the suspension of smelter capacity at Alumar and the cessation of smelting activities at Bayside. Manganese ore and alloys reported strong production growth of 7% year-over-year (or YoY) due to an improvement in ore recovery at Mamatwan.
Strong financial performance
Underlying EBIT for the December 2014 half year increased by $568 million to $716 million. Higher average realized prices for alumina, aluminum, and nickel, and a stronger US dollar increased EBIT by $368 million and $170 million, respectively. These factors along with reduction in controllable cash costs, including continued focus on labor and contractor productivity led EBIT to rise 384% YoY.
Aluminum demand growth has been strong. New supply is expected to continue curtailing high-cost capacity. This should benefit BHP and its peers like Rio Tinto (RIO) and Alcoa (AA). BHP, RIO, and AA form 32.3% of the iShares MSCI Global Metals & Mining Producers ETF (PICK). The SPDR S&P Metals & Mining ETF (XME) also invests in some of these stocks.
The nickel market isn’t picking up as analysts had expected following a ban on nickel exports by Indonesia. MMC Norilsk Nickel (NILSY) has projected flat nickel production in fiscal year 2015.