BHP eyes rising demand in China as profit declines

MELBOURNE: Global miner BHP Group reported a steeper-than-expected 32% fall in first-half profit owing to a drop in iron ore prices, sending its shares down, although it flagged a brightening outlook in China, its biggest customer.

China’s strict zero-COVID-19 policy curtailed economic activity and dented demand over the past year, driving iron ore prices down from lofty levels, while miners wrestled with surging costs and a tight domestic labour market.

As a result, the world’s largest listed miner reported underlying profit attributable from continuing operations of $6.6 billion, down from $9.72 billion a year earlier.

That missed a Vuma Financial estimate of $6.82 billion, as earnings from copper and coal came in lower than analysts had expected. BHP’s giant Escondida copper mine was hit by road blockades in Chile that disrupted mining supply deliveries.

However, its interim dividend of 90 cents per share, while down 40%, beat Vuma Financial’s estimate of 88 cents.

Shares of the global miner fell as much as 2.8% to A$47.11, their lowest since Jan. 6 and were down 2% at 0138 GMT in a broader market that was down 0.5%.

“We have got BHP as a ‘hold’ primarily because their share price is sitting up at record highs and they are going to have to do pretty well to justify those levels,” said analyst David Lennox of wealth manager Fat Prophets in Sydney.

The miner said it sees “markedly higher” price floors for some commodities than prior to the COVID-19 pandemic given the rising marginal 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,” BHP said, as it logged a $1 billion inflation hit, primarily from diesel costs, for the half.

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 metals consumer reopens and looks to revive its debt-laden property sector.

BHP’s confidence in China’s economy was buoyed by green shoots it had seen since the start of the calendar year, including new loans, house prices and business sentiment surveys, Chief Executive Officer Mike Henry said.