Life reflected in BHP’s figures – by Terry McCrann (The Australian – July 26, 2014)

BHP Billiton’s production figures effectively fired the starter’s gun for the annual profit season. They also neatly captured in microcosm the big questions about the future course of the overall economy.

Indeed, they were a much better guide to the future and its uncertainties than the June quarter CPI figures, released on the same day, which sent sections of the economentariat into a frenzy of hyperventilating certainty.

That’s a certainty that will no doubt last until some other statistic sends them hyperventilating in the opposite direction.

There’s no great surprise in the significance of BHPB’s numbers — oh for the day when it returns to the simplified BHP, sloughing off the second “B” along with all the rubbish it bought with Billiton.

BHPB remains our biggest company by far. While it won’t generate a profit this year all-but equal to the profits of all the four big banks combined, as it did a few years ago, it will still post a 2013-14 profit which will put any individual bank profit in the shade.

BHPB is not just the resources boom in miniature, it all but is the resources boom. OK, perhaps in combination with Rio Tinto, given the latter’s edge in iron ore, the resource that really “is” the boom, both in terms of dollars generated and its dominant centrality in our role in the China story.

Then perhaps we should add Twiggy Forrest’s Fortescue as not just the third iron ore major but also more directly representative of the “boom” aspect of the “resources boom”.

Whatever, BHPB’s production numbers were revealing not simply of its own corporate dynamic, but captured exactly the changing dynamics of the boom overall, and so the big questions about the economy’s future.

What we saw in the BHPB numbers were, broadly, falling ­prices and rising volumes. In the case of iron ore, its most important commodity in dollar terms (revenue around four times each of the coals, double if they are put together), the size of the volume increase managed to outstrip the falling prices.

Volumes were up 20 per cent, average price was down 6 per cent, so gross iron ore revenue was up 12 per cent. Now, in the one month so far of the new fiscal year the price has dropped a further 10 per cent or so, but we will have to see how that plays out.

In the case of coking coal, the big volume lift was offset by the price fall, so gross revenue was virtually unchanged. With energy coal, volumes were steady, so the price fall flowed through into a revenue drop.

Oil and gas was interesting, as the volume increase reflected somebody else’s resources boom — onshore US shale. BHPB has been essentially a spectator in our major LNG developments, and certainly the coal seam ones.

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