Aluminium accounts for 41 per cent of Billiton's profits and the three month price has fallen to $1180 per tonne, the lowest aluminium price ever in real terms. Average commodity prices in January are continuing to run below those of the same month last year, although Billiton feels prices may have bottomed out.
"It's very hard to see prices getting a lot weaker than they are today. But the situation probably isn't going to improve dramatically in the immediate future," said Brian Gilbertson, chairman and chief executive.
Billiton shares have been threatened with relegation from the FTSE100 index, with the newly-floated South African Breweries poised to gain entry. That would place further pressure on the share price.
But recent strength - the shares only dipped a penny to 134.5p on yesterday's figures - may have saved the group from expulsion from the Blue chip index when the FTSE indices committee meets next week.
Billiton is seen by analysts as a less balanced exposure to the mining sector than rival Rio Tinto, which reported only a 10 per cent dip in profits last week. The company is less well understood in the City and is dominated by aluminium, coal and steel although the group said yesterday that it could use its $2bn warchest to become more diversified. It is looking at moving into iron ore, increasing its copper interests and adding to its coal operations.
It has already had a busy six months buying out minority shareholders in some of its interests and more buy-outs are on the agenda. Some $1.5bn has been invested in the last six months as the company seeks to take advantage of low asset prices. Unit operating costs have been cut by 15 per cent although analysts say there is little fat left to cut.
The cycle could hardly be at a worse stage for Billiton, which spun off from the South African Gencor group in the summer of 1997.
But analysts say that hedge funds could start buying back in as they forecast the aluminium price. Already two US value funds, Franklin and Capital, have built disclosable holdings. This should provide beleaguered shareholders with some hope that the turn is not far away.
But this optimism should be tempered by a potential stock overhang. Some of the large South African shareholders such as the International Development Corporation of South Africa have said they want to reduce their holding. And Kleinwort Benson, which advised on the float, also apparently has a 2.5 per cent stake which may find its way onto the market.
On full-year profit forecasts of pounds 211m the shares trade on a forward multiple of 14. A decent hold, analysts say, although Rio Tinto looks more attractive.