BHP expects China's 2023 economic recovery to buoy metals amid US, EU slowdowns

BHP Group Ltd. sees China roaring back in 2023 to stabilize the global economy and support metals pricing as economic growth in the U.S. and Europe cool.

Though inflation and lower realized prices for copper and iron ore hit BHP's revenue and profit during the six months ended Dec. 31, 2022, CEO Mike Henry expects a significant positive change occurring in macroeconomic factors supporting metals and in governments realizing the sector's necessity in the energy transition.

"Pent-up demand being released as China opens back up from the COVID-19 lockdowns, coupled with growth policies, is expected to drive stronger increased demand for the commodities we produce. We now have even greater conviction that China will be a stabilizing force for global economic growth over the remainder of this year," Henry said.

Bank lending, mobility data, new home prices and business surveys all show "solid signs of improvement" thus far in 2023 for China, Henry told a Feb. 21 media call. In contrast, the miner expects slowing economic growth in Europe and the U.S. this year as the impact of 2022's anti-inflation policies and the energy crisis flow through.

"An easing of global inflation may allow central banks to end the rate hiking cycles in the coming quarters, and we expect world growth will strengthen in 2024. ... Over the long term, we are quite confident about the demand for our commodities being driven by the global trends of increasing population and standards of living, and the energy transition."

Henry said he was struck by the "uptick in global understanding of how important metals and minerals are going to be to the energy transition" during an eight-week world tour from December 2022 to January 2023, which included a stop at the World Economic Forum in Davos.

"I didn't have enough time in my calendar to be able to accommodate all of the government leaders from various nations who were chasing investment into their resources industry."

BHP's attributable profit in the first half of its fiscal 2023 fell 32% year over year to $6.46 billion, and revenue from continuing operations dropped 16% to $25.71 billion on lower realized copper and iron ore prices, higher royalties for Queensland coal and inflationary impacts. All of these were partially offset by record production at BHP's Western Australia iron ore business, higher realized thermal coal and nickel prices, and positive exchange rate movements.

"All in all, inflation had a $1 billion impact in the [fiscal first] half, representing a 12% inflationary rate," CFO David Lamont told media. "Overall diesel costs were up 70% period on period, seeing the overall diesel costs go from about 5% of our cost base to about 8%."

Lamont noted that while petrol prices have "come off their peak ... it's still certainly a headwind in comparison to previous periods."

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