BHP, Rio Profit Forecasts Cut at UBS on Coal Prices

By Rebecca Keenan

Dec. 22 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group had their earnings forecasts cut at UBS AG after the bank lowered its estimates for coking coal prices as steelmakers limit output.

BHP’s profit may be $13.3 billion in the year ending June 30, 2009, 7 percent lower than previously forecast, UBS analysts led by Glyn Lawcock said in a Dec. 19 report. Rio’s profit may be $6 billion in the year ending Dec. 31, 2009, he said. That’s 5.6 percent lower than previously estimated.

The global recession has curbed demand for steel, prompting mills in Asia, Europe and North America to slash purchases of raw materials. UBS cut its forecast for annual coking coal price contracts by 53 percent to $85 a metric ton next year because demand will remain ‘poor’.

“Production still needs to be taken down in order to balance with much lower demand,” Lawcock said. This may make production from some producers in the U.S. and Canada unprofitable, he said in a separate report on the same day.

BHP declined 0.9 percent to A$29.64 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Rio fell 4.1 percent to A$37.40.

UBS cut its profit estimate by 21 percent for Centennial Coal Co., Australia’s fourth-largest coal producer, and by 17 percent for Felix Resources Ltd.

Xstrata Plc, the world’s biggest exporter of power-station coal, was forced to accept a cut in prices for the coal sold to Japanese utilities, Citigroup Inc. and Merrill Lynch & Co., said last week. Contracts for coal to be delivered in the year starting Jan. 1, 2009, have been settled at $80 a ton, they said.

Xstrata closed operations and cut 230 jobs at its Oaky Creek coking coal mine in Australia, it said Dec. 16.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net