BHPCD BHP Billiton Ltd

By Rhiannon Hoyle

BHP Group Ltd. Tuesday reported a 42% increase in annual net profit and a record final dividend, reflecting strong commodity prices. Here are some remarks from its report.

On steel:

"Global crude steel production was unbalanced in the 2020 calendar year, with strong growth in China offset by a steep fall in the rest of the world. In the 2021 calendar year to date, this has corrected to some degree, with utilization rates in the ROW [rest-of-world] back close to normal, on average, even as China continues to produce at very high run-rates. Notwithstanding regulatory uncertainty with respect to periodic output controls, and Covid-19 risks, Chinese steel production is expected to increase by around 5% in the 2021 calendar year. We anticipate a continuation of strong end-use demand conditions in China and ongoing recovery in the rest of world over the course of the 2022 financial year."

On iron ore:

"Iron-ore prices have been elevated since the Brumadinho tailings dam tragedy in Brazil first disrupted the market in early 2019. Conditions have been particularly tight since the second half of the 2020 calendar year, with new record highs for the 62% Fe index fines and the lump premium established. Forces contributing to price gains over the most recent half have been strong Chinese pig iron production, recovering ROW pig iron production and tight supply of branded fines products. The premium for lump product has been very favorable in the most recent half, buoyed by similar factors to fines, in addition to sintering restrictions in parts of China. 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."

On coal:

"Metallurgical coal prices faced by Australian producers in the free-on-board [FOB] market were weak for most of the 2021 financial year. Australian FOB prices were able to stage a recovery late in the financial year based on pronounced multi-regional supply constraints, recovering ROW demand and an associated acceleration of trade flow adjustments. Even so, the differential between FOB prices and the China CFR equivalent remains very wide, which represents value leakage for FOB producers. The industry faces a difficult and uncertain period ahead while natural trade flows are impaired."

On copper:

"With ROW demand recovering and China's economy continuing to perform well, the short term outlook for demand remains constructive. On the supply side, we note that actual disruption rates have been below both the long-term average and more recent experience in the calendar year to date, despite potential headwinds from Covid-19 outbreaks, political uncertainty and a number of wage negotiations at Chilean mines. Longer term, both demand and supply factors indicate that copper is an attractive avenue for future growth. Regulatory uncertainty is an emerging risk across more than one key supply region, the outcome of which could potentially influence the identity and cost of long run marginal supply."

On potash:

"Potash prices have increased sharply over the last 12 months, despite ongoing excess production capacity. Strong demand due to favorable farm economics and constrained supply from presently operating assets have combined to inspire the rally. EU sanctions on certain grades of Belarussian potash exports have amplified the existing upswing."

On oil:

"Crude oil prices have recovered to above $70 per barrel as the 2022 financial year opens. We believe further gains from here are possible given our constructive view of demand tailwinds. However, future developments in price are also expected to rely in large part on the rate at which currently curtailed supply returns, which is highly uncertain. Looking beyond this phase, our bottom-up analysis of demand, allied to systematic field decline rates, points to a long run structural supply-demand gap. Considerable investment in conventional oil is going to be required to fill that gap and maintain market balance. If that investment is not forthcoming in a timely way, the possibility of oil prices increasing aggressively cannot be ruled out."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

August 17, 2021 04:02 ET (08:02 GMT)

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