BHP expects ongoing volatility in metals markets due to China's property slump

By Louis Goss

BHP full year revenue rose by 3%

BHP on Tuesday said it expects volatility in global commodity markets will continue throughout the remainder of 2024 due to the ongoing slump in China's economy and the troubles currently facing Europe's manufacturing sector.

The Australian mining company said the slowdown in China's property market will continue to hit demand for steel in the near term as it predicted Europe's manufacturing sector will also continue to struggle over the coming months.

BHP's warnings came as the company posted a 3% increase in its full-year revenue, to $55.7 billion, that saw it perform roughly in-line with expectations from 15 analysts polled by the company that it would generate sales worth $55.8 billion.

London-listed shares in BHP (UK:BHP) (AU:BHP) were up 1% on Tuesday having lost 22% of their value in the year-to-date after the company's share price slumped in the wake of Anglo American's (UK:AAL) decision to reject its $39 billion takeover offer.

The Melbourne headquartered mining giant saw its sales in the 12 months ending June boosted by high iron ore and copper prices in the latter half of 2023 which helped offset lower than average coal and nickel prices and lower production of steel-making coal.

Iron ore prices fell sharply in the first half of 2024, from years-long highs in the second half of 2023, as a result of the ongoing slump in China's property sector that has seen a sharp drop in construction this year. Copper prices have, by contrast, been boosted in 2024 by surging demand from Chinese renewable energy project developers.

BHP said it expects demand for metals including copper and iron ore will, nonetheless, be boosted in the long-term by the global energy transition and increased demand from the tech sector driven by the growth of artificial intelligence technologies.

"Short term pressure is likely to remain high as demand from China is subdued," analysts at AlphaValue said in a note as they suggested the company still "offers a very attractive diversified profile" that stands to benefit from medium-term trends.

BHP's profits attributable to shareholders, meanwhile, fell 39% year-on-year, to $7.9 billion, as it recorded exceptional losses worth $5.8 billion linked to the closure of its Western Australia Nickel mine and charges related to the 2015 Mariana dam disaster.

The Australian company, which was first formed in 1885, recorded a $2.7 billion loss related to its decision in July to suspend operations at its Western Australia nickel mine in response to oversupply of the metal on the market.

BHP said the introduction of new supply of nickel from Indonesia saw the country produce 50% of the world's nickel supplies in the calendar year 2023 as it blamed the recent slump in prices on the new supply from the country.

The mining firm also recorded $3.8 billion worth of provisions in connection with the collapse of the Fundão tailings dam in Brazil in 2015 that saw 43.7 million cubic meters of mining waste released from the Germano iron ore mine in a disaster that led to the deaths of 19 people. Those negotiations are still ongoing, the company added.

-Louis Goss

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08-27-24 0522ET

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