Bhp Billiton Share News (BLT)

Thu, 16th Aug 2012 15:09

By James Regan

SYDNEY, Aug 16 (Reuters) - BHP Billiton said on Thursday that worsening market conditions could lead to job cuts at its Australian coal mines, as slowing industrial activity in China forces global miners to scale back operations.

Global coal output is set to shrink over the next year or two as miners grapple with a combination of low prices, weak demand and currency headwinds, and high-cost Australian operations are under particular pressure.

Australia's mining boom has hinged on China importing hundreds of millions of tonnes of iron ore, coal, copper and other minerals for most of the past decade, but China's economy is now growing at its slowest pace in more than three years.

In a 50-50 partnership with Japan's Mitsubishi, BHP operates half a dozen coal mines in Queensland's Bowen Basin, yielding mostly metallurgical coal for steelmaking. At peak output, they can supply a fifth of the world's traded coal.

BHP earlier this year closed one of the mines outright, citing poor profit margins. Closest rival Rio Tinto also said in July it was cutting an unspecified number of jobs at one of its Australian coal mines.

'Against a backdrop of increasing costs and falling commodity prices, we continue to focus on reducing our overheads and operating costs,' BHP said.

'We don't intend to provide any detail about specific adjustments, but clearly there may be some impact on jobs in some areas,' it added, responding to a question about reports of job losses at its coal mines.

BHP employs about 10,000 at the Queensland mines, including 3,500 unionised staff already engaged in an 18th-month dispute over conditions and job protection.

Australia has become one of the highest-cost coal miners globally, matching the U.S. and Russia with cash costs - to mine and move it to port - of $90-$100 a tonne for some mines, compared with $30-$50 in Indonesia and South Africa.

Labour inflation in Australia has spiralled, senior mining industry sources said, and the strength of the Australian dollar has intensified the squeeze on margins.

Average employee costs in Australian coal mining are over $100,000 a year, more than triple the cost in South Africa or Colombia, which export a similar grade thermal coal, according to analysts Wood Mackenzie.

Benefits can include condominium-style mining camps and two-week-on 10-days-off rosters, with flights to exotic places like Bali thrown in.

Union representatives at BHP could not immediately be reached for comment, but one industry source estimated about 100 jobs could go, including staff at independent contractors.

























SOFTENING DEMAND

Softening demand growth in China has hammered prices of coal, iron ore and other commodities to their lowest levels in years, bruising the profits of miners such as BHP, Brazil's Vale SA, Xstrata and AngloAmerican.

BHP has abandoned an $80 billion five-year spending plan announced in 2011 when commodities markets were still firing, and has since signalled it would review its project pipeline.

ANZ Bank last week downgraded its commodity price forecasts by an average 4 percent in 2012 and 3.4 percent for 2013, the biggest revisions being for iron ore and coal, which the bank said were being heavily affected by the slowdown in China's demand growth and falling steel prices.

Thermal coal producer Xstrata said this week it had cut some of its contractors at its Australian coal operations 'given current market conditions'.

Prices for Australian thermal coal, which BHP also mines, have dropped about 18 percent since the beginning of the year to just under $93 per tonne, but have recovered from two-year lows under $90 per tonne seen in June of this year.

Spot metallurgical coal prices have dropped to just over $170 per tonne, down over 20 percent from the beginning of July.

'Coking coal prices are now more reflective of demand dynamics rather than supply, and the demand dynamics are quite soft, and that's showing up in the very weak steel prices we are seeing in China,' said Mark Pervan, global head of commodity strategy at ANZ Research in Melbourne.

China's steel prices, hovering near record lows, are expected to remain weak in the next few months due to a supply glut that will offset an expected increase in demand, the China Iron & Steel Association (CISA) said.

China, too, which in addition to being the world's top consumer of coal is also the top producer, said on Wednesday it would cut its coal output targets in its three top producing regions by up to 7 percent due to a supply glut.

Given this backdrop, analysts expect BHP to report its first drop in annual profits since the global financial crisis when it releases its financial results on Aug. 22.

BHP is expected to post attributable profit excluding exceptional items of $16.9 billion, a consensus of forecasts compiled by the firm shows, from $21.7 billion a year ago.



(Additional reporting by Rebekah Kebede in Perth and Jacqueline Cowhig in London; Editing by Ed Davies and Will Waterman) Keywords: AUSTRALIA BHP/JOBS

(jim.regan@thomsonreuters.com)(+612 9373-1814)(Reuters Messaging: jim.regan.thomsonreuters.com@reuters.net)

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