(Bloomberg) — BHP Group Ltd., the world’s largest mining company, reported its lowest annual profit in three years and warned that the outlook for China is uncertain as the nation grapples with a brewing crisis in its steel-dependent construction sector.
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CEO Mike Henry said in an interview that Beijing has put in place “policies designed to stimulate new beginnings” in the real estate sector, “but they’re not effectively translating into changes on the ground as we certainly would have expected.” on Bloomberg TV.
“It’s fair to call it somewhat uncertain,” he said. China is by far BHP’s largest iron ore customer.
After twelve months of an all-time high with prices soaring, the worsening economic outlook in the world’s largest metals consumer has led to double-digit declines in BHP copper, coal and nickel earnings. The Melbourne-based company said on Tuesday that inflation, particularly in labor costs, had also pressured earnings.
BHP’s tumbling earnings mirror those posted by iron ore rival Rio Tinto Group last month, as miners held their breath over the recovery in the Chinese economy since Beijing abandoned “Covid Zero” restrictions last November.
A slew of recent data suggests that demand for steel and iron ore could contract for the rest of the year, with China’s real estate market continuing to rock bottom. The authorities were unwilling to encourage massive construction despite the slowdown, which was reflected in industrial output for the month of July.
Read more: Solving China’s Steel Demand Mystery: Daily Energy
BHP’s underlying attributable profit from continuing operations fell 37% to $13.4 billion in the 12 months to June 2023, below analyst estimates. It will pay a final dividend of 80 cents per share, compared to $1.75 a year earlier. Shares of the Sydney-based company fell 2% on Tuesday.
“The main risk for BHP in the near term relates to the Chinese economy,” analysts at Jefferies LLC, including Christopher LaFemina, said in a note on Tuesday. “While the market may focus on capital expenditures and costs, the bigger concern is the risk of exacerbating downturns in the Chinese housing market.”
“Future-facing commodities” BHP has put copper, nickel and potash at the center of its growth plans, driven by population growth, urbanization and the clean energy transition. Henry said capital expenditures will rise to about $10 billion in the current fiscal year, up from $7.1 billion last year, as the company invests more in these minerals. It hopes these minerals will eventually make up 50% of its total business, with iron ore and coking coal accounting for the remainder.
The miner said it was also considering increasing annual iron ore production from its Australian operations to 330 million tons annually from the current 257 million tons. BHP did not provide an update on the progress of the sale of two coal mines in the Australian state of Queensland.
— With assistance from Yvonne Mann and Rishad Salamat.
(Updates with Jefferies’ comment in the eighth paragraph.)
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