The slowing world economy

BHP Billiton scraps mega mine expansion

Mining giant BHP Billiton has put on hold its massive $30 billion expansion of the Olympic Dam copper and uranium mine project in South Australia.

UPI,

22 August, 2012

Mining giant BHP Billiton has put on hold its $30 billion expansion of the Olympic Dam copper and uranium mine project in South Australia.

BHP said it wouldn't meet the Dec. 15 deadline to approve the expansion but will investigate less expensive methods to increase production at the mine.

BHP Billiton Chief Executive Officer Marius Kloppers attributed the decision, announced Wednesday, to market conditions, including subdued commodity prices and higher capital costs.

"As we finalized all the details of the project in the context of current market conditions, our strategy and capital management priorities, it became clear that the right decision for the company and its shareholders was to continue studies to develop a less capital intensive option to replace the underground mine at Olympic Dam," Kloppers said in a statement.

Last October, BHP, the world's largest mining company, announced $1.2 billion in pre-commitment capital for the project and was expected to approve the expansion by June 2012. But when commodity prices began to fall, the company said it wouldn't approve any new major project before December.

The expansion was to have the potential to boost production from about 180,000 tons a year to 750,000 tons a year for decades.

Also Wednesday, BHP Billiton reported that its full-year profit to the end of June fell 35 percent to $17.1 billion from $21.7 billion last year, which it also attributed to rising costs and falling commodity prices.

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Container Lines Losing Price Battle As Costs Overwhelm: Freight

Bloomberg,

22 August, 2012

The world’s container lines can’t raise freight rates fast enough to cover soaring fuel prices as persistent overcapacity works against the industry.

Hapag-Lloyd AG, Europe’s fourth-biggest container company, said Aug. 14 that further increases are “crucial” if it’s to offset rising bunker costs -- the price of fuel used on ships -- and generate an operating profit this year. Still, a lack of demand forced the Hamburg-based carrier to delay a rate increase this month on routes between east Asia and northern Europe and cut a planned peak-season charge by more than half.

Bunker fuel prices have jumped 19 percent to $673 a ton from this year’s low on June 22, according to data compiled by Bloomberg. At the same time, the Shanghai Containerized Freight Index -- a measure of prices for cargo leaving the world’s busiest port -- has dropped 6.2 percent since June 29 as Europe’s debt crisis drags down the global economy and stunts trade. Bunker prices will remain between $600 and $700 a ton this year, according to a forecast by ICAP Plc.

Chinese export growth collapsed in July, and the world’s second-largest economy expanded at the slowest pace in three years in the quarter through June.

“Weak fundamentals are making successful rate-restoration programs harder to implement,” Richard Ward, an analyst with ICAP, said in an e-mailed reply to questions. “Carriers are facing a struggling battle, as cargo volumes will drop off and capacity won’t be adjusted quickly enough.”

Falling Demand

Maersk Line, the world’s largest carrier, cut its forecast on Aug. 14 for global seaborne-container demand to a 4 percent rise from 4 percent to 6 percent previously. The company, a unit of Copenhagen-based A.P. Moeller-Maersk A/S (MAERSKB), also said inbound European volumes will fall as the debt crisis drags on.

Container lines had relied on a recovery in demand to restore profits after excess vessels, high fuel prices and a price war on routes between Asia and Europe last year led to losses at some of the world’s biggest carriers, including Maersk, CMA CGM SA of Marseille, France, and Hapag-Lloyd.

Hapag-Lloyd “is striving to post positive operating earnings again for the current financial year, provided that there is no fundamental escalation of the risks and assuming it proves possible to implement further rate increases in the course of 2012,” the company said this month. Such increases “are crucial to compensate for these elevated external costs. The cargo on board our vessels has to cover the cost of transportation.”

Rising Expenses

A 14 percent jump in average fuel prices last quarter sent Hapag-Lloyd’s transport expenses up by 26 percent, or 330 million euros ($411 million), from the second quarter of 2011, according to the company’s Aug. 14 statement. The weighted average freight rate in the period increased 7.4 percent to $1,594 from the first quarter and 4.1 percent from a year earlier, Hapag-Lloyd said. The company reported a net loss of 7.3 million euros for the period.

The Hamburg-based company cut its planned peak season surcharge between east Asia and northern Europe to $150 per standard container on Aug. 2 from an original $350 in response to flagging demand. The surcharge applies between Aug. 1 and Sept. 30. It also postponed a planned $250 per-container general rate increase on the route to Sept. 1 from Aug. 15.

The industry may be digging its own price hole, according to Paris-based industry consultant Alphaliner. Companies still are adding new vessels on the Asia to Europe route, where capacity has exceeded demand every month since at least January 2010, Alphaliner said in an e-mail distributed Aug. 14.

Net Loss

China Cosco Holdings Company Ltd. (601919), the country’s largest listed shipping company, reported a preliminary net loss for the first half of this year that widened by more than 50 percent from a deficit of 2.8 billion yuan ($441 million) a year earlier. South Korea’s Hanjin Shipping Co. (117930) reported a net loss on Aug. 2 of 1.27 billion won ($1.1 million) in the second quarter.

“Even though there’s more discipline in the container market, we expect volatility to continue because the fundamental problem with overcapacity is still there,” said Per Kronborg Jensen, a senior portfolio manager at Sparinvest A/S, which owns about 0.5 percent of Maersk’s B shares.

A.P. Moeller-Maersk stock is up 10 percent this year in Copenhagen, compared with about 11 percent for the Europe Stoxx 600 Index. China Cosco has lost 10 percent in Hong Kong, while Hanjin Shipping gained 29 percent in Seoul after falling 68 percent in 2011.

Lower Estimates

At least five banks cut their price estimates on Maersk after last week’s earnings report. The 12-month target as of yesterday was 47,445 kroner, the lowest since March 15, according to the consensus of 15 analysts.

Size may prove the best protection against the corrosive effect of overcapacity and rising bunker costs. Maersk said Aug. 14 its container line returned to profit in the second quarter, reporting net income of $227 million compared with a loss of $95 million a year earlier.

“It looks like current rate levels are OK for them, maybe due to efficiencies of vessels, exposure to routes and cost efficiencies,” ICAP’s Ward said.

Maersk’s average freight rate in the second quarter was $3,014 per 40-foot container, a rise of 4.2 percent, while the average bunker cost jumped 10 percent, the carrier said in its earnings report. Still, the company raised its earnings forecast, saying it now projects a “modest” 2012 profit after earlier seeing a “negative to neutral” result.

Jensen said Sparinvest has no plans to increase its Maersk stake. The fund isn’t planning to reduce it either, because Maersk’s other units, which include an oil explorer and a port- terminal operator, make up for the container business.

“We wouldn’t be surprised if Maersk Line should fall back into losses at some point because the volatility may be there to stay, more or less,” he said

Hewlett-Packard makes $8.8bn loss in third quarter

BBC

22 August, 2012

Hewlett-Packard has reported a quarterly loss of $8.85bn (£5.57bn).

The world's largest technology firm by sales was forced to to write down the value of some assets, mostly related to its purchase of Electronic Data Systems, which it bought in 2008.

The firm also had to absorb some sizeable restructuring costs, as it looks to cut some 27,000 jobs, or 8% of its global workforce, by 2014.

HP said net revenue in the third quarter fell by 5% to $29.7bn.

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