Steel mills defer BHP shipments
BHP BILLITON has admitted its iron ore shipments could fall by as much as 28 per cent during the final two months of the year because difficulties in obtaining credit has forced some steel mills to postpone deliveries.
Sydney Morning Herald - 17/11/2008
BHP BILLITON has admitted its iron ore shipments could fall by as much as 28 per cent during the final two months of the year because difficulties in obtaining credit has forced some steel mills to postpone deliveries.
The admission - yet to be announced to the market - lays to rest BHP's insistence last week that its iron ore division was operating as normal even though rivals like Vale, Rio Tinto and Fortescue Metals have announced reductions in their ore production.
A BHP spokeswoman, Samantha Evans, said the miner still had no plans to cut production, but up to 6 million tonnes of shipments - worth $US600 million ($926 million) at benchmark prices - could be postponed until next year following feedback from customers.
She said BHP would attempt to sell the production into the spot market, which is trading at a 40 per cent discount to the benchmark price, but would not be drawn on the issue of further sales cutbacks if the market remained soft.
There are concerns in the industry that BHP's continued selling into the spot market at discount prices will serve to lower the benchmark price of iron ore - and therefore Australia's export and corporate tax revenues - even further next year.
But BHP is in a tough position, since it is seeking European Commission approval for its bid for Rio amid concerns about the combined company's dominance of the iron ore market.
At an investor briefing in London on Friday, Vale's chief financial officer, Fabio Barbosa, launched a thinly veiled attack on BHP for its lack of disclosure on iron ore sales in recent weeks.
"We cannot escape the reality. We must face it," he said. "We have been very, very transparent, as is our approach, and conveyed to markets our views about what is going on. In terms of production, we were the first leading company to announce a cutback in production because we most clearly understood the state of the market."
Frank Zhang, a representative of BHP's shipping agent, Wilhelmsen Ship Services in Port Hedland, told the Herald last week his company expected fewer ships to be chartered in coming weeks and noted loading of some ships had already been stalled while waiting for letters of credit.
Last week the miner cited several operational issues rather than lack of demand as the reason for lower shipments, even though the Herald reported the Port Hedland Port Authority website showed BHP was poised to make about 40 shipments this month, down from 60 in recent months.
But when an interview with BHP's chief commercial officer, Alberto Calderon, in which he disclosed a revised sales outlook, was published on the internet early on Saturday morning, the miner's shares reversed earlier gains in London trading to close 21.5 pence lower at #9.05 ($20.75).
Ms Evans insisted the information was not price-sensitive and therefore did not need to be announced to the market in the same transparent manner as the cutbacks by Vale, Rio and Fortescue had been conveyed.
"We didn't see it as worthy of announcing it," she said.
BHP's board is expected to decide this month whether to proceed with a $US6.1 billion expansion to its iron ore production capacity. Chinese iron ore demand has not rebounded since the Chinese Government announced a $US586 billion stimulus package involving railway last week, but there are signs the market is stabilising.
"The railway package has helped recharge expectations about the future," Mr Barbosa said. "The first impression . . . is the deterioration has stopped, but we still have some issues to deal with [like less steel demand from the automotive sector]."
There are concerns that Japanese steel makers - which account for about a quarter of Australian iron ore purchases - are poised to make production cuts which could exacerbate the weak global demand.