Global miner BHP eyes brightening outlook in China as profit slumps
GLOBAL miner BHP Group reported a steeper-than-expected fall of 32 per cent in its first-half profit, due to a drop in iron-ore prices. While the news sent its shares down, the company flagged a brightening outlook in China, its biggest customer.
China’s strict zero-Covid policy curtailed economic activity and dented demand over the past year, driving iron-ore prices down from lofty levels. At the same time, miners wrestled with surging costs and a tight labour market in Australia.
As a result, BHP – the world’s largest listed miner – reported underlying profit attributable to continuing operations of US$6.6 billion, down from US$9.7 billion a year earlier.
The figure missed a Vuma Financial estimate of US$6.8 billion, as the miner’s earnings from copper and coal were lower than analysts had expected. BHP’s giant Escondida copper mine was hit by road blockades in Chile, which disrupted mining supply deliveries.
However, the global miner’s interim dividend of 90 US cents per share, while down 40 per cent, beat Vuma Financial’s estimate of 88 US cents.
Shares of BHP fell as much as 2.8 per cent to A$47.11 (S$43.39), the lowest since Jan 6, but recovered to finish lower by 0.3 per cent, slightly weaker than the broader market.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Analyst David Lennox of Fat Prophets, a Sydney-based wealth manager, said: “We have got BHP as a ‘hold’, primarily because (its) share price is sitting up at record highs, and (it is) going to have to do pretty well to justify those levels.”
The miner said it expected “markedly higher” price floors for some commodities, compared to what was seen prior to the Covid-19 pandemic, given the rising cost of production.
“The lag effect of inflation and continued labour-market tightness are expected to impact our cost base into the 2024 financial year,” it said. It logged a US$1 billion inflation hit, primarily from diesel costs, for the half-year.
Analysts at RBC Capital Markets said BHP’s first half was “surprisingly poor, but is a strong indicator of what is a still-challenging inflationary environment for the miners”.
The miner also said it expected the aggressive global interest-rate hikes from last year to slow growth sharply across the developed world.
China green shoots
However, after a difficult first half, the miner said China appears to be a “source of stability” for commodity demand, as the world’s second-largest economy and top consumer of metals reopens and looks to revive its debt-laden property sector.
The company’s comments sparked a rally in iron-ore futures, with prices on the Dalian Commodity Exchange jumping more than 3 per cent to their highest level since July 2021.
Its confidence in China’s economy was buoyed by green shoots it had been seeing since the start of the calendar year, including new loans, house prices and business-sentiment surveys, chief executive Mike Henry said.
“There’s a lot there that is giving us confidence that we will see an acceleration in the Chinese domestic economy,” he told reporters.
BHP brought forward the first production at its huge Jansen potash project in Canada to late 2026, from 2027.
The miner will also sell the Daunia and Blackwater coal mines, which it jointly owns with Mitsubishi Development. The partners own seven metallurgical coal mines in Queensland’s Bowen Basin, including the two that will be put up for sale.
BHP has threatened not to invest in Queensland after the state hiked its coal royalties to the highest rate in the world. REUTERS
Share with us your feedback on BT's products and services
