Nothing like having a better-than-expected result and a tasty reward for shareholders under the belt and so it was with BHP, with a big rise in revenue, a big rise in profit and a record interim dividend.
No wonder, then, it was a surprisingly upbeat BHP in its usual half-yearly commodity outlook accompanying the result report.
From steel to iron ore, copper and oil and gas BHP is very confident about the path for key commodities this year – that’s despite the tensions between Russia, Ukraine, Europe and the US, with an aggressive China under Xi Jinping hovering and supporting President Putin.
No sign of any second thoughts though in BHP’s commodity outlook.
On China’s steel market:
“In the half year ended 31 December 2021, the key theme in steel was a policy induced production crunch in China. The starting point for Chinese output expectations in the 2022 calendar year is zero growth from the 1.033 billion tonnes produced in 2021.
End-use demand in China is expected to firm over the course of the 2022 calendar year, as easier policy gradually takes hold. As is common at the start of a new five-year plan, infrastructure is expected to be supportive of steel demand.”
No immediate worries there about the decarbonisation push or the continuing attacks on iron ore prices by the Chinese government and the strongly expressed desire to replace imported ore with local (low grade) ore and more steel scrap.
And that means BHP is a little more upbeat about iron-ore prices:
“Iron-ore prices declined in the first half of the 2022 financial year as China’s steel production curbs took hold, while seaborne supply improved. Prices have since stabilised and recovered, albeit not to the previous highs.
“In the medium term, China’s demand for iron ore is expected to be lower than it is today as crude steel production plateaus and the scrap-to-steel ratio rises. In the long-term, prices are expected to be determined by high-cost production, on a value-in use adjusted basis, from Australia or Brazil.”
On steelmaking (coking) coal:
“Metallurgical coal prices surged to record highs in the first half of the 2022 financial year on multi-regional supply constraints amidst challenging operating conditions.
“Even so, the industry faces a difficult and uncertain period ahead while natural trade flows are impaired. Longer term, high quality metallurgical coals will continue to provide value-in-use benefits to integrated steelmakers as they seek to optimise the energy and emissions intensity of their operations.
“This will particularly be the case in emerging Asia, where the blast furnace fleet is still young, and transitional technologies are expected to dominate decarbonisation efforts in the next 20-30 years.”
All this sees BHP confident it can expand iron ore output from its mines in the Pilbara.
“On 7 September 2021, BHP received regulatory approval to increase capacity at our Port Hedland operations up to 330 million tons per annum (100% basis), subject to the outcomes of standard appeals processes.
“Our near-term focus remains on sustainable achievement of 290 million tons per annum of iron ore, with plans to creep beyond this through productivity improvements in the medium term.”
On the oil market:
“Beyond the current phase, considerable investment is going to be required to fill the medium- and longer-term supply-demand gap we expect to emerge. If that investment is not forthcoming in a timely way, the possibility of oil prices moving up aggressively cannot be ruled out.”
(Remember BHP has quit direct involvement in oil and gas via the spin off its petroleum division to Woodside.
And then there are copper and nickel – the two future ‘green’ commodities that BHP has pinned a lot of hope to for a continuing future:
On copper prices:
“Copper prices have receded slightly from the record highs established in the second half of the 2021 financial year, but they remain very high in absolute terms. Longer term, both demand and supply factors indicate that copper is an attractive avenue for future growth.”
On nickel prices:
“Nickel prices performed well over the first half of the 2022 financial year and the positive momentum continues. Depleting stocks was a recurrent theme over the half, with strong demand from both traditional uses and batteries coupled with supply uncertainty. Longer term, we believe nickel will be a core beneficiary of the electrification megatrend and that nickel sulphides will be particularly attractive.”
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Post balance date saw BHP’s share market listings unified on the ASX – with a record interim dividend of $US1.50 a share.
That was after it rode out the downturn in iron ore prices in the six months to December that will clearly impact rival Fortescue Metals more than it did BHP which saw a $US10 a tonne rise in its average iron ore price to just over $US113 a tonne for the half.
The record interim dividend is up from $US1.01 a year earlier.
BHP reported a profit from operations of $US14.8 billion, underlying earnings before interest, tax depreciation and amortisation of $US18.5 billion and a very high profit margin of 64% for continuing operations.
The company said that the better-than-expected result flowed from “Disciplined cost performance, with unit cost guidance reiterated with the exception of Queensland Coal which has increased, reflecting lower expected volumes for the full year as a result of significant wet weather and labour constraints.”
The company’s attributable profit to shareholders was $US9.4 billion.
Revenue rose 27% to $US30.52 billion.
And for all those positives, investors sold off the shares which were easier for most of the session, but they crawled back into the green near the end of trading for a tiny gain of 2 cents a share to $48.35, only to dip right at the end to finish at $48.18, down 0.3%.
