BHP Billiton Ltd/Plc (BHP.AX: Quote) (BLT.L: Quote), the world's biggest miner, increased first-half profits by 2.2 percent, aided by a last burst of Chinese demand growth, but the result was weaker than expected as plunging metals prices bit.

BHP's earnings are set to fall for the first time in 10 years this year as oil and metals prices have slumped and demand for metals has dwindled as manufacturers slash production worldwide.

In face of the downturn, the company already flagged it would shed 6 percent of its workforce and shut its Ravensthorpe nickel operation, with a $3.3 billion writedown on the project. It has warned it may have to close more mines.

Analysts said the underlying earnings were largely in line with expectations, but net profit appeared to have been hurt by a bigger tax cost than expected. They tipped the sharp slide in the December quarter was likely to continue in the second half.

The momentum of the commodities market is negative and BHP still sees a very tough and volatile market in the next six months. Clearly they won't be able to repeat the types of numbers seen in the first half, said Tim Schroeders, a portfolio manager at Pengana Capital.

Despite the tough times, BHP still has a strong balance sheet, setting it apart from rival miners such as Rio Tinto Ltd/Plc (RIO.AX: Quote) (RIO.L: Quote), giving it room to reward shareholders with a 41 percent increase in its dividend.

We have the real luxury almost unique in our industry to be able to continue to plan for that long term that we've always spoken about, while not having to be forced into a set of short term decisions that can be damaging to the company, CEO Marius Kloppers told reporters.

The company said commodity prices were likely to remain weak and volatile for some time.

Compared to how upbeat BHP was four to five months ago, this is a much more subdued outlook, said Peter Chilton, an analyst at Constellation Capital Management.

July-December profit before one-offs rose to $6.13 billion from $5.995 billion a year earlier, missing analysts' forecasts for $6.78 billion.

Costs increased by $1.9 billion, with nearly a third of that due to higher fuel, energy and raw materials, such as explosives, but those prices are now coming off.

Earnings from iron ore, its biggest earner, more than doubled to $4.1 billion, while earnings from petroleum jumped 36 percent to $2.7 billion.

The group's base metals division reported a loss, as sliding metals prices whacked $2.9 billion off its earnings.

The big disappointment was probably base metals, said UBS analyst Glyn Lawcock.

As flagged, BHP booked massive writedowns on its Ravensthorpe and Yabulu nickel operations and expensed $450 million it spent on a takeover bid for Rio Tinto which it scrapped in November, knocking its net profit to $2.62 billion.

BHP shares have climbed 7 percent in the three months since it walked away from its Rio offer, outperforming a 9 percent slide in the broader market and a 43 percent drop in Rio's shares. (Additional reporting by Mette Fraende, Simone Giuliani, Bruce Hextall, Cecile Lefort and Fayen Wong) (Editing by Jonathan Standing)

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