BHP May Post Eighth Record Profit on Rising Prices

BHP Billiton Ltd., the world's biggest mining company, may post an eighth-straight record half- yearly profit because of increasing demand from China and higher commodity prices. Net income for the second half may advance 23 percent to $7.5 billion for the six months ended June 30, according to the median estimate of eight analysts surveyed by Bloomberg News. Melbourne-based BHP reports earnings tomorrow. Marius Kloppers, picked to become chief executive officer in October, will take over from Charles ``Chip'' Goodyear, who approved spending $12.4 billion on new mines, rigs and plants needed to meet demand for raw materials from copper to oil. Rising costs reduced first-half earnings at rival Rio Tinto Group by 14 percent, as costs of labor and materials increased. ``They've benefited from extremely favorable commodity prices,'' said Glyn Lawcock, an analyst at UBS AG, in Sydney. ``The key would be to see how they have gone with costs inflation.'' BHP, traded in Sydney and London, has risen 38 percent this year on the Australian Stock Exchange, outperforming a 14 percent gain at London-based Rio. BHP fell as much as 39 cents, or 1.1 percent, to A$34.51 and traded at A$34.79 at 11:29 a.m. Sydney time, after gaining 7.6 percent yesterday. Anglo American Plc, the second-largest mining company, posted a record profit of $3.38 billion this month and is spending $2.6 billion on two iron ore and copper projects. Xstrata Plc, the biggest energy coal seller, more than doubled profit after buying Falconbridge Ltd. BHP said its survey of 22 analysts expect a full-year profit of $13.5 billion, which would indicate a second-half income of $7.3 billion. `Strong Demand' The miner said on July 24 that production for the fiscal year ended in June increased to records for natural gas, alumina, aluminum, copper, nickel, iron ore, manganese ore and coking coal. It also raised output of energy coal, diamonds and manganese alloy. China, the biggest consumer of copper and steel, grew 11.9 percent in the second quarter, the fastest in 12 years. Economic growth in 2008 is expected to be 10.2 percent, Standard & Poor's said Aug. 9. China accounted for 18 percent of BHP's sales in the first half, a third more than a year ago. ``Demand is robust, and we're still going to see consumption from China and India underpin it from the short to medium term,'' said Alfred Wong, who helps manage $16 billion at UOB Asset Management Ltd. in Singapore, including shares of BHP. ``This cycle is going to be extended.'' `Huge Bull' Kloppers, 44, who is targeting annual production growth of more than 10 percent, told analysts last month he was a ``huge bull'' on prices and said the strength of China's demand may continue for the next two decades, UBS said in a July 5 report. Goodyear and Kloppers weren't available to comment. BHP is the world's top producer of coal for the steel industry and third-biggest iron ore exporter. It controls Chile's Escondida copper mine, the world's largest, and also produces oil and gas. Its base metals unit, which includes copper, contributed about a third to earnings in the first half. The second-largest contributor was petroleum. BHP is benefiting from a 9.5 percent gain in iron ore, used in steelmaking, to a record this year. The price may rise another 25 percent in 2008, Credit Suisse Group forecast. The average cash price in London of nickel, used in stainless steel, more than doubled in the half, and copper, used in pipes and wires, averaged 12 percent higher. Investors will be seeking confirmation price gains have outpaced rising costs after Rio's earnings fell, said Jason Teh, who helps manage $6.5 billion at Investors Mutual Ltd. in Sydney. ``The rising costs that plagued Rio may hurt BHP.'' Costs Gain A stronger Australian currency is eroding profit margins of local mines because products are priced in U.S. dollars, said John Mackinnon, a resources analyst at Deutsche Bank AG in Melbourne. The Australian dollar is up 5.1 percent against its U.S. counterpart in the past year. Increasing demand for energy is adding to expenses in drilling for oil and developing new fields. BHP raised the projected cost of developing its Stybarrow oil project in Australia by 27 percent on June 24, and said investment plans at the Atlantis and Neptune oil projects in the U.S. were under review.