BHP embarks on further productivity gains to weather coal rout

The world's largest diversified miner believes there's still value in coal despite the depressed market, aiming for a further 600 million U.S. dollars in productivity gains and cost reductions to whether the rout.

Mining giant BHP Billiton has been cutting costs in its coal division since 2012, down 3 billion U.S. dollars through asset sales and operational measures, including the demerger of South32, to keep remaining operations a cash positive.

Further divestments could be on the cards as BHP coal chief Mike Henry on Tuesday flagged further cost reductions and productivity gains to the tune of 600 million U.S. dollars, to increase competitiveness of its coal operations -- both in terms of costs and volumes.

"Rather than waiting for higher prices, we have been deliberate in shaping a quality, focused portfolio that allows us to deliver value in challenging market conditions and positions us well for an improvement in coal market fundamentals," Henry told investors in a presentation released to the ASX.

Prices of metallurgical -- or coking coal -- which is used in steel making have slumped from around 300 U.S. dollars per ton in 2011 to around 80 U.S. dollars per ton, in line with weakening steel prices. Prices for thermal coal have taken a similar slide.

As supply comes offline from reduced investment and mine closures due to the low prices as short-term dynamics show the market will be subdued for some time, BHP said its robust outlook is underpinned by ample expected demand through the mid-2020s and later.

"The developing world needs steel, steel needs coking coal, and we have the strongest resource position in the seaborne market," Henry said.

So too is thermal coal, with absolute demand expected to increase 10-15 percent by the mid-2020s, despite it being a declining share in the global energy mix, primarily from India and South East Asia, 23 percent of the world's population, but only 13 percent of global electricity generation.

As economies however look to transition away from carbon intensive fuels, such as coal, BHP said its portfolio is still resilient"in a two-degree world."

"Against the backdrop of greater uncertainty in the outlook for thermal coal, we are confident that base demand in emerging economies will remain resilient for decades to come and our higher quality coals position us well in an increasingly carbon constrained world."

By 1228 local time (AEST) on Tuesday, BHP's shares were trading 16 Australian cents (11.96 U.S. cents), or 0.90 percent, lower at 18.70 Australian dollars (13.98 U.S. dollars) in a bid Australian market. Endit