BHP’s billion-dollar blow for state’s economy
Profits from BHP Coal have fallen dramatically and could have far-reaching impacts.
BHP chief executive Mike Henry says weaker demand from India and Europe and an increase in supply are partly to blame for the more than $1 billion wiped from BHP’s Queensland coal business in the final six months of last year.
More than $1 billion was wiped from BHP’s Queensland coal business in the final six months of last year, setting up a major impact on the Queensland economy.
The company announced its half-yearly profits this week which showed earnings before tax and other items at its Queensland Coal business fell by $US1.1 billion ($A1.6 billion) to $US898 million.
The result is even worse when a similar fall would have been felt by its joint venture partners and other coal producers in Queensland.
The impact of the fall is also damaging to Queensland Treasury, which has benefited from a windfall from coal over the decades through its coal royalties system.
The results show a fall in royalties paid of $US267 million ($A400 million) for the half-year compared with $US394 ($A511 million) for the first half of the previous year.
BHP sells most of its coal on the spot market, which is volatile, and prices have dropped by as much as $US40 a tonne.
Many of its competitors sell on a contract, which provides a buffer against price plunges felt this year because of China’s import policies.
BHP chief executive Mike Henry said the profitability of the steel mills that use its coking coal has been challenged, with blast furnaces caught between falling output prices and rising input costs.
“Global steel production is expected to increase modestly in the 2020 calendar year, with a slowdown in Chinese growth offset by some improvement in other key regions,’’ Henry said.
“Weaker (coal) demand from Europe and India and rising supply, mostly in the mid-quality bracket, contributed to the correction.
“China’s import policies are expected to remain a source of uncertainty. Longer term, we expect India to sustain strong demand growth, while high-quality metallurgical coals are expected to continue to offer steelmakers value-in-use benefits.’’
The results showed there were lower volumes at Queensland Coal due to planned major wash plant shutdowns across a number of operations and low opening inventory levels at Blackwater impacting plant feed.
Increased maintenance costs at Queensland Coal due to major planned wash plant shutdowns and mobile equipment maintenance, and higher contractor costs associated with the mobilisation of additional equipment at South Walker Creek.
