(Reuters) -BHP Group’s (NYSE:BHP) first-half profit fell by 32%, which was more than expected, due to a drop in iron ore prices. This sent its shares down, but the company also said that the outlook in China, which is its biggest customer, was getting better.
Over the past year, China’s strict “zero COVID-19” policy slowed down the economy and lowered demand. This drove iron ore prices down from their high levels, while miners in Australia had to deal with rising costs and a tight labour market.
So, the largest publicly traded miner in the world reported an underlying profit from continuing operations of $6.6 billion, which is less than the $9.72 billion it reported a year earlier.
Vuma Financial had thought it would earn $6.82 billion, but copper and coal sales brought in less money than expected. Chilean road blockades made it hard for BHP to get supplies to its big Escondida copper mine.
But its interim dividend of 90 cents per share beat Vuma Financial’s estimate of 88 cents, even though it was down 40%.
Shares of the global miner fell as much as 2.8% to A$47.11, which was the lowest price since January 6. However, they recovered to end the day down 0.3%, which was slightly worse than the market as a whole.
Analyst David Lennox of wealth manager Fat Prophets in Sydney said, “We have BHP as a “hold” because their share price is at record highs, and they will have to do a lot to justify those levels.”
Due to the rising marginal cost of production, the miner said it sees “markedly higher” price floors for some goods than before the COVID-19 pandemic.
“The lag effect of inflation and the continued tightness of the labour market are likely to have an effect on our cost base through the 2024 financial year,” BHP said as it reported a $1 billion inflation hit for the half, mostly due to higher diesel prices.
Analysts at RBC Capital Markets said that BHP’s first half was “surprisingly bad,” but that it was a good sign that inflation is still making things hard for miners.
BHP also said it thought that aggressive interest rate hikes around the world since last year would sharply slow growth in the developed world.
China shoots green
But after a tough first half, the miner said China seems to be a “source of stability” for commodity demand as the world’s second-largest economy and top metals consumer reopens and tries to revive its debt-ridden property sector.
The company’s comments made iron ore futures go up, and prices on the Dalian Commodity Exchange went up by more than 3% to their highest level since July 2021.
Chief Executive Officer Mike Henry said that BHP’s confidence in China’s economy was boosted by signs of improvement it had seen since the start of the year, such as new loans, rising house prices, and surveys of business sentiment.
In a conference call with reporters, he told them, “There is a lot there that gives us confidence that the Chinese economy will speed up.”
BHP moved up the start date for its huge Jansen potash project in Canada from 2027 to late 2026.
It also said that it and its joint venture partner Mitsubishi Development had decided to sell two of their seven metallurgical coal mines in Queensland’s Bowen Basin. These mines are Daunia and Blackwater.
After Queensland raised its coal royalties to the highest rate in the world, BHP said it might not invest in the state.
