BHP Lifts Outlook, Pays Record Dividend During Supercycle Talk

(Bloomberg) -- BHP Group boosted its outlook for the global economy as the Covid-19 vaccine rollout gathers pace, backing its optimism by rewarding investors with a record $5.1 billion first-half dividend.

The world’s biggest miner reported a 16% increase in first-half profit, and said it will pay a record interim dividend of $1.01, up from 65 cents last year.

“The deployment of vaccines in key economies, albeit with some uncertainty as to timing and efficacy, removes a material amount of downside risk to the short term demand and price outlook for our portfolio commodities,” the company said Tuesday.

The biggest miner’s comments come as talk of a burgeoning commodities’ boom gathers pace with JPMorgan Chase & Co saying a new supercycle may have begun. On the broader stage, global equities are on course to rise for 11 straight sessions -- the longest stretch since 2009 -- as investors take comfort in progress on the Covid-19 vaccine rollout.

“The mega-trends that we see playing out around global population growth, the electrification thematic and the energy transition, all of these bode well for commodity demand over the medium-to-long term,” Chief Executive Officer Mike Henry said in a Bloomberg Television interview. “And of course, in the near term, as the world recovers from Covid, we’ll see some pretty strong fundamentals as well.”

Read: Commodity Supercycle Talk Is About to Be Put to the Test

Iron ore futures surged 70% last year, boosted by China’s stimulus-driven recovery and supply disruptions in Brazil. BHP analysis indicates that before prices can correct meaningfully from their current high levels, one or both of the Chinese demand and Brazilian supply factors will need to change materially, the miner said.

“Buoyant iron ore prices underpin strong upgrade momentum for BHP,” analysts at Macquarie Group Ltd. said in a report, while noting that the underlying profit result was below the bank’s forecast. The steel-making ingredient accounted for about 70% of earnings in the first half.

Still, BHP said China’s demand for iron ore was likely to be lower in the second half of 2021 as crude steel production plateaus and scrap-to-steel ratios rise. China’s ore stockpiles hit their highest since November heading into the lunar new year holiday, while Beijing has also pledged to rein in steel output this year.

BHP also expects a “constructive” short-term demand outlook for copper, which is seen benefiting from the shift to cleaner energy. The metal climbed to its highest level since 2012 on Monday. There was also potential for supply disruptions in key producer Chile, due to an escalation of Covid cases there.

BHP shares rose 2.7% in Sydney on Tuesday, while its main rival Rio Tinto Group added about 3%.

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