Despite softening iron ore demand from China, prices of the metal are likely to hold above US$80 ($125) per tonne, according to BHP (ASX:BHP) Group which yesterday posted a 37% drop in underlying profit, to US$13.4 billion.
BHP primarily attributed this decline to weaker iron ore, copper and coking coal prices, plus a fall in sales volumes of West Australian iron ore.
Iron ore prices received by BHP in 2022-23 were down 18% from the year prior, while received prices for copper were 12% lower and coking coal prices were down 22%, although received thermal coal prices were 9% higher than the previous year.
The company sold 280.7 million tonnes of iron ore over the 12-month period, marking its weakest sales in four years, which it attributed to weather-related disruptions and port maintenance.
However, the sales data may not entirely represent the actual output of Western Australia’s iron ore sector as BHP did finish the year with a substantial stockpile of almost 4 million tonnes of iron ore in China, which could be sold quickly.
The company revealed that shareholders would receive a final dividend of US80¢. This brings the cumulative total annual dividend to US$1.70 per share, which is the fourth largest annual dividend in the company’s history, although it is 48% lower than last year’s record payout.
Notably, both the profit and dividend figures came in below analysts' expectations, with the consensus anticipating underlying earnings to reach US$13.76 billion in the year to June 30, alongside total dividends of US$1.72.
In terms of its asset portfolio, BHP is divesting its non-core Daunia and Blackwater coking coal mines in Queensland.
BHP recognises the significance of Chinese demand for iron ore for steelmaking and highlighted the determining role that Chinese stimulus packages had in influencing demand for essential steel production materials like iron ore and coking coal.
The miner also pointed to the prevailing uncertainty regarding the Chinese Government’s enforcement of steel production curbs, especially as China’s domestic demand for steel exceeds its production.
BHP is optimistic about receiving “cost support” for iron ore within the range of $US80 to $US100 a tonne. This outlook is based on the premise that marginal mining entities will halt operations should the iron ore drop below the $US80 per tonne threshold.