Manganese Production Cut Announced by BHP

BHP Billiton (BHP), a leading producer of manganese ore has decided to cutback manganese production at the Samancor operations in South Africa and Australia where it owns more than 60% of share. The global market condition and reduction in the demand of steel is said to be the cause of this production cut.

BHP has announced that, this cut in production mwill reduce the production of ore and alloy by 21% and 23% by June 2009 and it has also said that the shutdown of the operations in Western Australia will reduce the nickel sales by 28,000 tonnes which will cut world’s nickel supplies by almost 2%. Due to this cut down BHP will loose 25000 of the metal. It is already estimated a deficit in the nickel market of 80,000 tonnes this year and this will worse the situation.

Coking coal is another raw material in which BHP can attain market leadership but it is expected by BHP to announce a production cut in coking coal which is now doing well in the market with $300 per tonne. Xstrata, Assmang and Samancor Chrome who are the producers of alloy have also announced their production cuts. However, other leading producers of manganese such as OM Holiday have not yet announced production cut.

Many analysts have reacted for this situation. Mark Pervan, ANZ Bank senior commodity analyst has said that this as an indication of how the demand for steel is reducing as more than 90% of the manganese is used for the production of steel. Merrill Lynch has said that the prices of cooking coal will be reduced in the middle if next year by 58%.

A large part of earnings for BHP comes from manganese and the reduction in its production will surely have an effect in its balance sheet and like compensating this it has decided to join hands with Woodside Petroleum and the other partners in the North-West Shelf. This will keep them in the oil production field beyond 2020.