Through its Coal segment, BHP Billiton (BHP) (BBL) is the world’s largest supplier of seaborne metallurgical coal. Along with iron ore and manganese, metallurgical coal is a key input in steel production.
A sustained rise or fall in coal shipments is a significant indicator that affects the stock value of coal producers (KOL) such as BHP Billiton, Peabody Energy (BTU), Alliance Resource Partners (ARLP), Arch Coal (ACI), and Cloud Peak Energy (CLD). BHP makes up 5.5% of the iShares Commodities Select Strategy ETF (COMT).
BHP Billiton’s metallurgical coal production for 1H17 increased by 1.0% to 21.1 million tons. There were several contributing factors.
- The completion of longwall mining at the Crinum mines and adverse weather conditions were more than offset by strong performance at Broadmeadow, Peak Downs, Saraji, and Caval Ridge.
- Record production was achieved at Peak Downs in the December quarter.
- The company transported coal to Caval Ridge to use the latent wash-plant capacity.
- BHP’s energy coal production for 1H17 fell 4% year-over-year (or YoY). The half-year ended December 2015 benefited from a higher drawdown of inventories, which resulted in a 13% decline in volumes for 1H17.
- The company partially made up for this decline through an 11% increase in volumes at Cerrejon.
Coal production guidance
- BHP maintained its metallurgical coal production of 44 million tons in fiscal 2017. This guidance is higher than the fiscal 2016 production, as higher wash-plant and truck hours are expected to more than offset the closure of Crinum.
- The company also maintained its energy coal production of 30.0 million tons for fiscal 2017. Production in fiscal 2016 was 34.0 million tons. The fall was mainly due to the divestment of its New Mexico coal assets, which will be somewhat offset by productivity improvements for New South Wales Energy Coal.
Next, let’s discuss the major reasons for BHP Billiton’s weaker-than-expected copper production and the company’s outlook for fiscal 2017.