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Flat iron ore result tipped for BHP

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AAP

2013-01-21

Iron ore has been BHP Billiton's highest-earning commodity for a while but the continued resurgence of the petroleum division is expected to be displayed this week.

A flat production performance in iron ore is being tipped by some analysts when BHP reports its quarterly figures for the three months to December 31 on Wednesday.

RBC Capital Markets Des Kilalea has forecast second quarter iron ore production of 41.18 million tonnes compared to 41.07 million tonnes for the same period in 2011.

That would mean first half production for 2012-13 of 80.95 million tonnes.

Mr Kilalea forecasts a more decisive eight per cent rise in petroleum products to 62.63 million barrels of oil equivalent (mmmboe) from 57.98 mmboe a year ago, driven by both its Gulf of Mexico and new US shale assets.

Iron ore prices were volatile during the quarter but far higher for the same period in 2011 when they were mostly above $US130 a tonne and often above $US140.

They plunged to below $US90 last September before recovering to an average $US117 in the September quarter.

The recent rally has analysts including Credit Suisse's Paul McTaggart upgrading earnings forecasts and share price targets for 2013.

However last year's iron ore weaknesses mean a weaker half year profit will be reported by BHP in February, with iron ore having contributed close to half of its earnings in recent years.

The petroleum division that now includes $US20 billion in US shale acquisitions is tipped by Credit Suisse analyst Mr McTaggart to increase its share of the earnings mix to 29 per cent this year, up from 23 per cent.

Petroleum was BHP's biggest earner in the 1980s.

Now it could be again as it is one of the "late cycle" commodities, also including copper, that BHP sees as stepping up in demand as iron ore weakens as China transitions from an investment-led to consumption-led economy.

Fellow miner Fortescue Metals will report its latest production results on Thursday.

Credit Suisse's Matthew Hope is forecasting a 34 per cent jump in iron ore shipments to 19.8 million tonnes from 14.77 million tonnes for the same period in 2011.

He also thinks it will grow its profit in 2013, despite recent plunges in iron ore prices threatening the relatively high-cost miner's profitability.

Since prices started rebounding Fortescue has impressed the market by restarting the ramp-up of its Solomon Kings mine.

Costs and debt remain the biggest concerns for Fortescue - although higher volumes will bring down costs.

Net debt is expected to hit a peak, according to Credit Suisse, of $9.687 billion in 2013.

Greg Roberts