SHANGHAI, Aug 24 (SMM) - On August 22, the 2022-2023 annual profit announced by BHP Group hit the lowest level in three years, but the decline in profits is not the most worrying factor for the world's largest mining company. Rather, it is concerned about the increase in uncertainty in global demand for its key commodities, which will affect the company's performance.
Much of the drop in profits can be blamed on weak commodity prices, particularly iron ore, which accounts for nearly 60% of BHP's underlying earnings.
|
Iron ore |
2022 FY |
2023 FY |
2024 FY forecast |
|
Output (100 million mt) |
2.53 |
2.57 |
2.54-2.65 |
|
YoY |
|
1% |
Down 1%-up 3% |
|
Unit price ($/mt） |
113.1 |
92.54 |
|
|
YoY |
|
Down 18.18% |
|
|
Earnings before interest, taxes, depreciation and amortization (100 million US dollars) |
217 |
167 |
|
|
|
|
Down 23% |
|
|
Proportion of EBITDA to the Group |
|
59% |
|
Data source: the company's FY23 performance report
While BHP raised production to 257 million tonnes for the year ended June 30 from 253 million tonnes previously, the average realized price slipped to $92.54 a ton from $113.10 a ton the previous year.
|
Copper products |
2022 FY |
2023 FY |
2024 FY forecast |
|
Output (10,000 mt) |
157.4 |
171.7 |
172-191 |
|
YoY |
|
Up 9% |
Up 0.1%-11% |
|
Unit price（$/lb） |
4.16 |
3.65 |
|
|
YoY |
|
Down 12% |
|
|
Earnings before interest, taxes, depreciation and amortization ($100 million) |
86 |
67 |
|
|
|
|
Down 22% |
|
|
Proportion of EBITDA to the Group |
|
23% |
|
Data source: the company's FY 2023 performance report
The company also reported lower realized prices for copper and metallurgical coal, although thermal coal and nickel prices rose slightly, both commodities contributing less to earnings.
"In the short term, while the outlook for the developed world is uncertain, we expect China and India to remain relatively stable sources of commodity demand," BHP said in its results note. Developed countries are currently facing economic problems associated with high inflation and the consequent tightening of monetary policy.
But perhaps more worryingly, the outlook for demand from China and India, the two main sources of commodity demand in Asia, is stable at best, and even so, BHP is still using the word "relative" to qualify this.
Turning to China, BHP acknowledged that the Chinese government is currently trying to revive the growth of the world's second largest economy and the largest importer of commodities.
BHP has confidence in India, but the problem BHP faces is that India buys very little of the goods it produces, only coking coal and thermal coal are currently traded. This means that even if India does perform strongly, it won't do BHP, or most global mining companies, much favor.
In the case of BHP and its peers, their performance has been largely affected by global developments as they currently produce commodities such as iron ore and copper that are mainly sold to China. So it seems like the best case scenario that they want relatively stable demand from China.
