In response to the continued deterioration in the global economic conditions, BHP Billiton (BHP) is adjusting its production levels to match demand and is suspending cash-negative operations.

At the end of November 2008, BHP’s 50% owned Samarco joint venture (Brazil) announced a temporary reduction in pellet production. Following further assessment by management, production at both pellet plants was restarted during the quarter ending March 31, 2009.

In December, BHP announced a temporary reduction in manganese production at its 60% owned Samancor (Pty) Ltd operation due to weak market conditions. The cuts are expected to reduce ore production by 30% and alloy production by 35% for FY09.

Further, in January 2009, BHP announced the indefinite suspension of Ravensthorpe Nickel Operations (Australia) and cessation of mixed nickel and cobalt hydroxide processing at the Yabulu Refinery (Australia). Earlier this month the company agreed to sell its Yabulu nickel refinery in Australia to companies wholly owned by Professor Clive Palmer. The sale is expected to be finalized by the end of July.

These decisions were taken in response to the weak market conditions and deteriorating demand. The company had stated that it will continue to review all its operations and will take further actions if deemed necessary.

Though BHP expects the market uncertainty to continue in the short to medium term, it is confident that the ongoing industrialization in China and other developing economies will drive the long-term demand for its products.

With its diversified portfolio of high quality assets and a strong balance sheet, we believe BHP is well positioned to benefit from a market recovery. We maintain our Hold recommendation on the stock.
Read the full analyst report on “BHP”
Zacks Investment Research