BHP has warned of a looming decline in demand for iron ore in China, with some high-cost suppliers at risk of being placed out of the market.
The diversified mining giant expects Chinese blast furnace run rates to ease in 2024 amid subdued steel margins and possible policy-driven production controls.
BHP also expects China’s demand for iron ore to decrease in the medium term from the current levels, with its production plateauing above 1 billion tonnes likely to continue in the mid-2020s.
Moreover, the mining company noted that the rising ratio of China’s scrap-based steel, contributing to the decline in demand. Chinese pig iron output is also expected to decrease as more recycled scrap is used for steelmaking.
Despite that, BHP said it plans to increase production at its Western Australia Iron Ore (WAIO) to over 305 million tonnes per annum (Mtpa) over the medium term.
WAIO is an integrated system of four processing hubs and five mining hubs, and it has been the lowest-cost major iron ore producer globally for over four years.
BHP’s Net Profit Declines, Revenue Increases
BHP’s warning comes on the same day it reported its attributable net profit plunged 39 percent to US$7.90 billion while revenue grew 3 percent to $55.66 billion in the fiscal year ended June 30, 2024.The company attributed the lower net profit to a $5.8 billion loss, predominantly comprising of a US$2.7 billion impairment of Western Australian nickel and a US$3.8 billion charge associated with the Samarco dam failure.
Meanwhile, the revenue growth is due to higher realised iron ore and copper prices, with sales volumes increasing 3 percent and 5 percent, respectively.
During the fiscal year, the company’s capital and exploration expenditure grew 31 percent to $9.3 billion due to increased capital investment in copper and potash by $1.5 billion. BHP said it expects about 65 percent of its medium-term capital will be earmarked for these future-facing commodities.
“We continued to advance growth options in the commodities the world needs to meet the demands of the energy transition and population growth,” said BHP CEO Mike Henry.
“Over the long term, the outlook for our key commodities remains positive. We continue to expect that population growth, urbanisation, rising living standards, and the infrastructure required for decarbonisation and electrification will drive demand for steel, non-ferrous metals such as copper, and fertilisers.”
BHP is looking into growing its Copper South Australia’s production above 500 kilotonnes per annum (ktpa) with further potential of up to 650 ktpa.
It also noted its Jansen potash project in Canada is progressing ahead of schedule, with the first production just over two years away.
