Commodity price slump hammers BHP Billiton's profits

Global mining giant BHP Billiton Tuesday posted an 86.2 percent slump in annual net profit despite slashing costs, as a collapse in Chinese demand for key raw materials hit hard.

The US$1.91 billion result in the 12 months to June 30 compared to US$13.83 billion a year earlier, as the prices of key commodities -- including iron ore, coal and oil -- plunged over the year.

Underlying earnings which exclude one-off writedowns were down 52 percent to US$6.4 billion, below analyst expectations.

As expected, the result included numerous impairments, including an already announced $US2.0 billion after-tax writedown against its US shale division as falling oil prices hit shale gas.

BHP's share price, which has been trending down in recent months, closed 1.97 percent higher at Aus$23.34 before the results were announced.

Despite the profit slump the company maintained its final dividend at 62 US cents per share, and said capital spending would fall from US$11 billion in the 2014-15 financial year to US$7 billion by 2016-17.

The miner has been cutting jobs and trimming operating expenses, which reduced net debt, to try to counter sliding commodity prices and this helped offset some of the damage.

"We will cut costs further and exercise our growing capital flexibility to improve our competitiveness and support our progressive dividend policy," chief executive Andrew Mackenzie said.

But he admitted uncertain times lay ahead, notably with its largest customer China amid global fears the world's second-largest economy is weaker than thought.

The fears have left its stock market and other Asian and world bourses reeling this week.

"In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility," he said, with the price of steel-making commodity iron ore under pressure.

"And, while we remain confident in the long-term outlook for commodities demand as emerging economies continue to urbanise and industrialise, we have lowered our forecast of peak Chinese steel demand."

- Simpler portfolio -

BHP now forecasts Chinese steel production will peak between 935 million and 985 million tonnes in the mid-2020s, but Mackenzie said this would "favour low-cost producers with economies of scale" such as BHP.

"Longer term, in emerging economies other than China, the continuing rise of population, creation of wealth and urbanisation will increase demand for all of our commodities," he added.

During the year BHP spun off non-core assets into a new independent company, South32, to help simplify its operations.

South32 now operates assets including aluminium, coal, nickel, manganese, silver, lead and zinc, leaving BHP to focus on its most profitable core long-life operations -- iron ore, copper, petroleum, coal and potash.

South32 reported a maiden net profit on Monday of US$28 million for the year to June 30, and outlined a strategy focused on reining in costs and internal restructuring.

Mackenzie reiterated that "with a significantly simpler portfolio, we are even better placed to achieve further productivity improvements in the assets that underpin the value of the company".

Fellow mining giant Rio Tinto posted an 82 percent slump in its first-half net profit earlier this month, with softer commodity prices also taking their toll.

It was a theme followed by Fortescue Metals on Monday, whose annual net profit slid 88 percent, with China's economic slowdown weighing heavily.

BHP, Rio, Fortescue and Brazil's Vale are the world's big four iron ore exporters but weaker Chinese demand for the commodity has hit their bottom lines.