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BHP tightens belt on falling metals prices

BHP Billiton’s iron ore loading facilities in Port Hedland, Western Australia. BHP is looking to cut costs as the global commodities market sputters.

BHP Billiton/Reuters

BHP Billiton Ltd., the No. 1 global miner, says it is on a drive to cut costs as it braces for falling metals prices, the latest signal that a decade-long commodities boom is waning.

The Anglo-Australian company is a key supplier to countries such as China, which until recently drove the so-called commodities supercycle for more than a decade with massive urbanization projects, including the 2008 Beijing Olympics.

As growth in China began to slow, and Europe's debt crisis deepened, prices for many of the bulk commodities that BHP produces fell significantly from peaks reached in early 2011.

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"Against a backdrop of increasing costs and falling commodity prices, we continue to focus on reducing our overheads, operating costs and non-essential expenditures to ensure our assets are well-positioned on their relative cost curves," BHP said Wednesday in an e-mailed statement, without providing further details.

"This includes reviewing our overhead costs and the sequencing of our major projects," said the company, which is to report annual results on Aug. 22.

Global commodity prices fell about 19 per cent on the Scotiabank Commodity Price Index over the past year or so, a sharp drop but still not as steep as a 46-per-cent decline after global markets imploded in 2008.

"It doesn't set off alarm bells, but it does really point to the fact that global growth has slowed quite markedly, so [companies] feel that special attention to containing costs is important in an environment of lower commodity prices," said Patricia Mohr, vice-president of economics and commodity market specialist at Bank of Nova Scotia.

Vancouver-based Teck Resources, one of the world's largest producers of coking coal used to make steel, said last week that second-quarter profit was cut by more than half amid lower coal and metal prices.

Also last week, Suncor Energy Inc. said it is rethinking billions of dollars of planned spending because of increasing costs.

BHP, with a market capitalization of $160-billion (U.S.), is the world's largest diversified miner, producing minerals and materials essential for industrial growth, including copper, iron ore and coal and petroleum.

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It first warned in May about a slowdown in the commodities cycle, which hit as mining costs ballooned, and said it would pause an $80-billion expansion plan for its iron ore, coal, energy and base metals divisions over the next five years on concerns that commodity markets might cool further.

Scotiabank on Wednesday said it is forecasting global GDP growth of 3.1 per cent in 2012, compared with estimated growth of 4 per cent last year and forecasts for growth of 3.4 per cent in 2013.

"It is a fairly significant slowing in world economic growth, with recession in some of the peripheral southern European countries and sub-par growth in the United States and also in Canada," Ms. Mohr said.

Prices for copper, viewed by many as a reflection of the global economy, suffered their worst losses in more than a week on Wednesday after China, the top consumer of the metal, as well as Europe and the United States published weak manufacturing data.

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