What you need to know about BHP Billiton Limited’s market update

The share price of BHP Billiton Limited (ASX: BHP) rallied to a two-month high this morning even as the world’s biggest miner cut its iron ore production guidance in its March quarter production update.

The stock is 2.6% higher at $30.85 in late morning trade compared to a 0.5% gain by the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

BHP cut its FY18 iron ore output forecast to between 272 million and 274 million tonnes due to reliability problems with its car dumpers. The miner was initially forecasting a range of 275 million to 280 million tonnes.

There are also issues with its Olympic Dam operations where the ramp-up was slower than expected in the latest quarter due to smelter maintenance, although this wasn’t enough for the miner to reduce its production forecast for copper.

Instead, the miner narrowed its production guidance range for the red metal to 1.7 million to 1.785 million tonnes versus its original estimate of 1.655-1.79 million tonnes.

But investors are quick to forgive as BHP said petroleum output for the financial year would be at the upper end of its 180 million to 190 million barrels of oil equivalent guidance and reaffirmed its guidance for other commodities like metallurgical coal and energy coal.

Perhaps the bigger reason for BHP’s outperformance is the brightening outlook for commodities in general with most industrial metals recording strong gains in overnight trade on speculation that the US expand its sanctions against other Russian mineral producers.

By no coincidence, Rio Tinto Limited (ASX: RIO) received a positive reaction from the market when it released its quarterly update to the market yesterday.

While the results were positive overall, some brokers have noted that Rio Tinto missed their expectations on a few of the commodities it produces.

That didn’t stop the stock from jumping ahead and most brokers continue to recommend the stock as a “buy”.

I am expecting the same outcome for BHP, particularly given that oil had also rallied strongly on an unexpected drop in US oil inventories last night.

The strong crude price has caught many analysts off-guard and is likely to provide a nice windfall for BHP as it looks to sell its onshore unconventional oil and gas assets in the US.

This is probably the highlight in my opinion from the March production update with management stating that it expects to receive bids by the end of June and could announce details not long after.

The market is expecting a pretty decent offer for these assets but that means this could be a source of disappointment in the coming months.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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