JOHANNESBURG (miningweekly.com) - Downside risk in manganese volume projections was continuing into the second-half, despite the cutbacks that had already been made, BHP Billiton CEO Marius Kloppers said on Wednesday.

Kloppers said that BHP Billiton was already operating its manganese business at virtually half of its available capacity, because that was as much as the market was prepared to accept.

The company's manganese products, particularly the alloys, were sold into Europe and North America, where, certainly on the blast-furnace side of the steelmaking business, it had experienced greater reductions than was the case with the North Asian mills.

The second aspect which was most important was that steel producers were able to store "months, and months and months" of manganese, compared to iron-ore, which could be stored for only a couple of weeks, at most.

What that meant was that the stocking-destocking cycles of manganese and iron-ore worked very differently.

"As a result of that, despite having already cut our manganese production, our overall second-half outlook is that there is still some downside risk in the volume projections," Kloppers told Mining Weekly Online.

In December, the company announced that its reduction in manganese ore output would be balanced between its Hotazel mines in South Africa, and its Gemco operations in Australia.

Resources at both these operations would shift to focusing on development and the rebuilding of product inventories, which had been severely depleted.

ALUMINIUM

Kloppers told Mining Weekly Online that two criteria against which the company evaluated its capacity in aluminium - another Southern African product of BHP Billiton - were its ability to sell the product and its ability to generate cash in making such sales.

"With respect to the second, ‘does it make money?', criterion, it is a little bit more convoluted in aluminium, because you have so many of your cost structures, like electricity and fuel, that are linked to your output price and which are all very highly correlated.

"The aluminium prices have reacted and you have to take a view on how the input costs will react, and we clearly want to do that.

"The third thing is that we've already closed the very high-cost capacity at pot rooms B and C in Bayside when we didn't have power. But, having said that, we have, unfortunately at this point in the cycle, to continue to review things as prices weaken," he said.

COAL

On the outlook for BHP Billiton's coal mines in South Africa, Kloppers said that, once again, the cutback in blast-furnace steelmaking production, had put downward pressure on the energy coal price.

This was the result of the cutback in blast-furnace steel production, which had led to less coking coal being consumed and a build up of surpluses of hard coking coal, which then lowered demand for soft coking coals, pulverised coal injection product and also energy coal.

In turn, the energy coal price was linked to the prices of energy minerals like gas and petroleum.

If the petroleum price remained weak, and the steel production continued to be constrained, one could expect the energy coal price, on balance, to reflect some pressure, which was what it had been experiencing over the last couple of months.

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