BHP Group predicts lower, more normal demand trajectory
IRON ORE futures yesterday slipped after BHP Group, which is listed on the JSE, forecast that iron ore supply in the longer-term was “expected to return to a more normal trajectory”.
In its annual report, released yesterday, BHP said China’s slowing economic growth and demand could result in lower iron ore demand and “materially and adversely impact results including cash flows”.
China’s gross domestic product growth is expected to slow modestly this year and in 2020, it said.
The mining conglomerate last year generated $24.3 billion (R358.54bn) from sales into China, up from $22.7bn the prior period.
Current year sales into China by commodity included: 57 percent iron ore, 26 percent copper, 14 percent coal and 2 percent nickel.
Other risks the group flagged were a marked rise in geopolitical uncertainty and protectionism, which had the potential to inhibit international trade, weigh on business confidence and constrain investment.
“In particular, restrictive trade policies in the US and China have ramifications for business, governments and citizens.
“They may adversely affect BHP’s ability to trade, and impact demand for BHP’s products in those and other economies.”
It also said BHP’s ability to obtain and retain licences to explore or develop resources or to access markets for sales or supply might be inhibited if there were tensions between a host country where it operated or sold its products in other countries that BHP was “seen to be allied with”.
BHP said such tensions might result in rescission of licences, nationalisation of assets, detention of BHP employees for regulatory investigations or limitations on markets or customer access.
Futhermore, the group’s access might be restricted through disruptions to shipping lanes, ports or other facilities as a result of conflicts or embargoes that were not directly related to BHP or its customers.
BHP also indicated its fears that business may be negatively impacted by the exit of the UK from the EU, potentially triggering a deterioration of business activity in Britain and other countries.
“There remains uncertainty surrounding financial and trade implications of Brexit, which may be more severe than expected,” the group said.
It said another threat to its business was that it was exposed to price movements in minerals, oil and gas.
“For example, a $1 (R14.65) per ton decline in the average iron ore price and $1 per barrel decline in the average oil price would have an estimated impact on FY2019 profit after taxation of $154 million and $29m, respectively.”
Iron ore has had a volatile year. Bloomberg reported that futures for October sagged as much as 3 percent to $91.64 a ton on the Singapore Exchange and traded at $92.70 in intraday trade after a 1.9 percent drop on Monday.
The weakness follows an 11 percent climb last week, the biggest since February.
The iron ore price jumped more than 60 percent to above $123 a ton in February, owing to supply disruptions in Brazil and Australia, and record steel production in China.