BHP Sees Promising Signs for Steel and Copper Demand Recovery

BHP, the world's largest listed miner, has reported a significant drop in its first-half profits, marking the lowest earnings in six years. Despite this downturn, the company is optimistic about a potential recovery in steel and copper demand, driven by economic improvements in China and central bank rate cuts.

Key Takeaways

• BHP's first-half profit fell 23% to $5.08 billion, slightly above expectations.
• Iron ore earnings dropped 26% due to lower prices.
• The interim dividend declared is the lowest in eight years at 50 cents per share.
• Central bank rate cuts may boost demand for steel and copper.

Profit Decline Amid Market Challenges

BHP's underlying attributable profit for the six months ending December 2024 was reported at $5.08 billion, a 23% decrease from the previous year. This figure, however, was slightly better than the consensus estimate of $5.01 billion. The company's shares saw a minor decline of 0.3%, reflecting broader trends in the mining sector.

The decline in profits was primarily attributed to a 26% drop in earnings from iron ore, BHP's most significant revenue source. The average realized price for iron ore fell from $103.7 to $81.11 per wet metric ton, exacerbated by disruptions caused by cyclones affecting shipments from Australia.

Dividend Cuts and Future Outlook

In light of the profit slump, BHP declared an interim dividend of 50 cents per share, the lowest since 2017, down from 72 cents a year earlier. This decision aligns with the company's payout policy and reflects the current economic climate.

Despite these challenges, BHP's CEO Mike Henry expressed confidence in the company's future, emphasizing a focus on organic growth rather than acquisitions. He stated, "Our current focus is 100% on organic growth options."

Recovery Signals in Steel and Copper Demand

BHP is optimistic about the recovery of steel and copper demand, particularly in light of recent central bank rate cuts. The company noted that these monetary easing measures could lead to increased demand across the OECD countries in the near term.

Henry highlighted early signs of economic recovery in China, along with resilient performance in the U.S. and strong growth in India, as factors that could bolster demand for BHP's products. He stated, "Demand for BHP's products remained strong despite global economic and trade uncertainties."

Copper Operations and Future Investments

BHP's copper operations reported earnings of $5 billion in the first half, a remarkable 44% increase, driven by tight market fundamentals and supportive Chinese stimulus plans. The company plans to invest $4.7 billion in expanding its copper operations, anticipating a 24% growth in output over the next three years.

In summary, while BHP faces challenges with declining profits and lower iron ore prices, the company remains hopeful about the recovery of steel and copper demand, supported by favorable economic conditions and strategic investments in its operations.

Sources

• BHP sees steel and copper demand recovering after profit slumps to six-year low | Reuters, Reuters.