BHP H1 profits soar on prices recovery as dividend doubles

Australian mining giant BHP Billiton more than doubled its interim dividend payout as it reported a massive jump in underlying profits which were underpinned by a recovery in commodity prices and demand from China.

The world's biggest miner said underlying first-half net profit to $3.24bn from $412bn in 2016. A first half dividend of 40 cents was declared, up from 16 cents, a 10 cent increase over policy that links payouts to results.

The dividend would be covered by free cash flow, the company said. It also announced a $2.5bn bond buyback targeting 2018, 2019, 2021, 2022 and 2023 US dollar-denominated notes and be funded by BHP's $14bn cash position..

BHP said the outlook for the US economy was "uncertain" with the policy platform of the new Trump administration pointing to a "higher inflation environment than previously envisaged”.

“The medium-term impact on growth is unclear, notwithstanding infrastructure related announcements, especially in the context of tighter financial conditions.”

Copper prices improved towards the end of the first half of the 2017 financial year due to a combination of mine supply disruptions, stronger than expected Chinese demand and an improvement in investor sentiment, BHP said.

"In the short- to medium-term, new and expanded production is expected to keep pace with demand and maintain a well-supplied market in balance. In the long-term, the copper outlook remains positive, as demand is supported by China's shift towards consumption and the scope for substantial growth in emerging markets," it added.

Global steel production growth gained momentum, led by a recovery in China. BHP said it expected Chinese steel production growth to moderate in the short term as the rate of growth in the housing market eased amidst escalating supply-side measures.

Steel production in the rest of the world would improve "marginally", led by India, the company added.

"Iron ore prices have been highly volatile, starting the 2016 calendar year at low levels before recovering strongly in the Chinese spring. The price reached a two year high in December 2016, on the back of higher-than-expected steel production in China and tight supply of high grade ores. The market is likely to come under pressure in the short-term from moderating Chinese steel demand growth, high port inventories and incremental low cost supply," BHP said.

"Metallurgical coal prices surged in the first half of the 2017 financial year, driven by pronounced shortages in both domestic Chinese and seaborne supply and reflected the impact of China's 276-working day reform policy and adverse weather conditions in China and Queensland."

"Prices are expected to return to industry marginal cost once seaborne and Chinese supply constraints are eased. The application of China's coal supply reform policy is a source of short-term uncertainty. We expect emerging markets such as India will provide long-term seaborne demand growth, while high-quality metallurgical coals will continue to offer steel makers value-in-use benefits."