- Trade war dampens global economic growth but not demand for metals
MELBOURNE: BHP Group posted its largest annual profit in five years and record full-year dividends, but its share price eased as the world’s biggest miner flagged global economic headwinds that could hit demand for iron ore and copper.
Both profit and dividends slightly undershot expectations as BHP kept cash in its coffers amid risks to global economic growth such as the Sino-US trade war, and as costs rise at some of its operations.
“As a BHP shareholder you can’t be too disappointed. It’s been a great year for the company, they have made a lot of money,” said Brenton Saunders of Pendal Group. “That’s in part a function of commodity markets and less so a function of managing and running a business like this.”
BHP will hand back $3.9 billion in dividends to investors in addition to $17 billion already announced for the financial year ended June.
That stemmed from the sale of its shale gas business and was helped by surging iron ore prices following supply outages in Brazil and Australia.
“Most people were thinking around this level on dividends, but a lack of any additional returns may disappoint some,” said analyst Glyn Lawcock at UBS in Sydney.
While the trade dispute between Washington and Beijing has dampened global economic growth, it has not yet affected Chinese demand for iron ore, copper and coal, said Chief Executive Andrew Mackenzie.
Reports of stimulus efforts in China and Germany calmed fears of a severe downturn in the global economy on Tuesday that were stoked last week as bond yields fell.
Mackenzie is six years into the top job at BHP and is expected to step down soon, leavinghis successor with a number of challenges.
He said he did not expect Chinese steel demand to grow next year given already robust infrastructure spending and softening economic signals.
He also cited rising cost pressures, which were seen in petroleum as well as BHP’s Queensland coal division.
“We believe capital returns from BHP have peaked for this cycle due to rising costs, gradually rising capex, lower realized prices, and a lack of proceeds from asset sales,” said Jefferies.
Iron ore prices have tumbled as global supply has normalized, after outages and strong Chinese appetite caused the Dalian iron benchmark to more than double.
Mackenzie also said that BHP had its thermal coal operations under review. There has been some speculation in markets that the company could look to sell these operations.
Underlying profit for the 12 months ended June 30 rose to $9.12 billion from $8.93 billion but still undershot expectations of $9.4 billion. But the company recorded $1 billion in productivity losses for fiscal 2019 on disruptions to production at its copper and iron ore operations.