Top global miner BHP Billiton sees signs of commodities recovery

Melbourne

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 12-18 months," CEO Andrew Mackenzie said on 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 per cent since it touched a low in January. Iron ore has gained about 34 per cent this year, while oil has advanced about 14 per cent since the Organization of the Petroleum Exporting Countries (Opec) last month agreed on 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 tonnes 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 per cent to close at A$22.47 in Sydney trading on Wednesday, trimming its advance this year to 26 per cent.

"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 output in the three months ended Sept 30 declined 6 per cent 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 on Wednesday in a phone interview. The mine, estimated to produce about 200,000 tonnes 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," Ms McGill said. "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- 25,000 tonne 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", Ms McGill said. BLOOMBERG