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Thread: BHP vs. RIO

  1. #1

    Default BHP vs. RIO

    Hey guys, just joined up looking to find out a few things about the stock market.

    been reading the business section of the australian lately and there has been a few articles in there that have left me with questions

    The article states that RIO has lesser production costs involved then BHP does, just wondering how you get those kind of facts.

    Another is why LNG prices are underpinned by Oil prices?


  2. #2

    Default Re: BHP vs. RIO

    In the markets that import LNG, much of the gas ends up being used for electricity generation (the largest single use of fuel in most countries) and some of it ends up firing factory boilers etc too.

    Oil can also be used to run the exact same equipment and is also easier (cheaper) to transport and store since it's a liquid rather than a gas.

    Ultimately, the only real reason anyone uses gas for major applications like power stations is if it's cheaper than oil. Go back 40 years when oil was cheap and LNG wasn't really around, and the use of fuel oil in power plants and factory boilers etc was far, far greater than the use of gas in those applications.

    In short, if gas wasn't cheaper than oil then nobody would bother with all the hassle of using it. It's a lot easier to build some simple tanks and ship in the oil rather than having to ship and store LNG at -161 degrees C etc.

    Due to the above, it has long been a common practice that natural gas contracts work with reference to the oil price. It's effectively a means of guaranteeing, from the customer's perspective, that switching to LNG won't result in a financial loss compared to staying with oil (bearing in mind that historically, most of the LNG market has been conversion from oil).

  3. #3
    sydboy007's Avatar
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    Default Re: BHP vs. RIO

    Really don't like RIO at the moment.

    They are a 1 trick pony - most of their profits are from Iron Ore.

    They have a humongous Aluminium albatross around their neck as well. While the Chinese are willing to churn out aluminium at less than commercial rates of return I don't see Rio getting any value from this side of their business. Further write downs for sure.

    Just got to hope BHP hasn't over paid for their shale oil / gas leases. The company has a piss poor record for investments. The Bhiliton merger was a massive valuation drain for the Aussie Shareholders

    Will be interesting to see if Japan is able to get rid of the linkage of LNG to oil prices. Suppose it will depend on demand and supply over the next few years.

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