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BHP upbeat on iron ore, expecting China stimulus

in Commodity News 23/08/2018


BHP Billiton said Tuesday that China’s iron ore demand will remain supported by Beijing’s efforts to prop up the economy, as the world’s largest mining group announced its highest full-year profit in four years against a backdrop of a trade war.
BHP’s underlying profit — the company’s preferred earnings gauge — jumped 33% on the year to $8.9 billion for the fiscal year ended in June, helped by an 8% rise in overall production and higher prices for most of the commodities it deals in. Net profit dropped 37%, undercut by a $2.8 billion write-down of the company’s shale assets as it withdrew from the shale-oil business.
“Higher prices clearly help, but so do our actions,” Andrew Mackenzie, BHP’s chief executive, told analysts the same day, referring to the company’s cost-cutting efforts since he took the helm in 2013. The Anglo-Australian miner announced a record dividend of 63 cents per share, as investors await the proceeds of BHP’s $10.8 billion shale asset sale.
The Melbourne-based miner announced its results amid simmering Sino-U.S. trade tensions, as the two countries brace for a second round of tariffs, scheduled to hit on Thursday. But the effect of the escalating trade war on BHP’s iron ore shipments, 80% of which go to China, and on its iron ore business, which makes up around a third of its earnings, is “much less than people think,” said Mackenzie.
China’s government is prepared to intervene with stimulus, he said, with the country already considering alternative destinations for exports hit by U.S. tariffs. “We anticipate that a number of things will be done to stimulate domestic demand,” said Mackenzie. “All the usual measures — fiscal, monetary, credit — will be applied in order to do that.”
Daniel Hynes, a senior commodities strategist at Australia and New Zealand Bank, agreed. “Certainly, it appears the Chinese government has been surprised by the longevity of trade tensions, and that has clearly resulted in more proactive fiscal policy,” he said, adding that he expected to see domestic demand for steel and its principal ingredient, iron ore, to rebound as infrastructure demand is stoked again in China. That “would reverse the declines of the past six months, and certainly provide a fillip in terms of prices,” Hynes said.