BHP Forecasts Iron Ore to Rebound After Annual Output Declines

(Bloomberg) -- BHP Group forecasts iron ore production will rise as much as 6% this fiscal year after output slumped to a first annual decline because of a train derailment and a cyclone that deluged Australian ports.

Total production from Australia is estimated to jump to between 273 million and 286 million tons in fiscal 2020 after recording its first annual decline since China’s steel boom began at the start of the century. Annual output fell to 269.6 million tons in fiscal 2019, missing an average forecast of 272 million tons among five analysts surveyed by Bloomberg.

Key Insights

• BHP expects the impact of higher operational costs and other productivity setbacks to total $1 billion in annual results to be published next month, a figure which includes $835 million of losses from unplanned production outages in the first half
• Weaker output in iron ore will be offset by this year’s surge in prices that’ve jumped on strong demand and supply outages in Brazil and Australia. The steel-making material advanced 71% in the first six months, and is trading close to a five-year high, Mysteel Global data shows. BHP’s rival Rio Tinto Group on Tuesday reported quarterly shipments fell 3% on a year earlier
• Work to improve car dumpers in the iron ore unit will impact output this quarter, while BHP will carry out a major maintenance program at the Port Hedland export hub through the year under plans to lift capacity to 290 million tons.
• China’s steel industry is defying a bearish outlook on the nation’s growth, posting record daily production rates in June. Crude steel output rose 10% from a year earlier and run-rates were equivalent to more than a billion tons a year, according to data published Monday
• BHP forecasts copper output to rise as much 8% this fiscal year, while the producer’s oil and gas unit is projected to see production fall as much as 9% on maintenance at Atlantis and natural field decline.
• The producer expects an increase in the total cost of its provision for the 2015 Samarco dam failure in Brazil and is currently reviewing assumptions. BHP sees a $260 million charge for its share of work to decommission Samarco’s upstream tailings dams, as the asset won’t generate cash flow to cover the work.

Market Reaction

• BHP’s Sydney-traded shares have gained 27 percent in the past year, compared to a 30 percent advance by rival Rio Tinto Group. Production data was released Wednesday before trading opened in Sydney.

Get more

• For more details on the production data, click here.
• Read the statement here.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net, Keith Gosman

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