22nd Aug 2023 10:56
(Alliance News) - BHP Group Ltd's less impressive annual results reflect normalising commodity prices after a spike following the outbreak of war in Ukraine, analysts explained on Tuesday.
Now, the miner's attention will be on how China's housebuilding sector holds up.
In the financial year ended June 30, the Melbourne-based diversified mining group said revenue fell 17% year-on-year to USD53.82 billion from USD65.10 billion. The decline was mostly due to "significantly" lower prices across iron ore, metallurgical coal, and copper.
In iron ore and copper - BHP's two largest segments - prices fell 18% and 12% respectively from the prior year.
On Tuesday, BHP said attributable profit from total operations plunged 58% to USD12.9 billion from USD30.90 billion. The prior year had included an exceptional gain of USD7.1 billion related to the net gain of the merger of BHP's Petroleum business with Woodside, which had completed during the year, BHP noted.
Profit had nearly tripled in financial 2022, thanks to the contribution from the Woodside merger, as well as soaring commodity prices.
In addition, financial 2023 took a USD1.7 billion hit from "the lagged effect of inflation".
BHP announced a final dividend of 80 US cents, bringing the total payout for the financial year to 170 cents. This was down sharply from the 325 cents the year before.
Shares in BHP were down 0.1% at 2,199.50 pence each in London on Tuesday morning, having closed down 0.7% at AUD43.21 in Sydney.
"The relatively muted reaction on the part of investors to [the dividend cut] reflects an acceptance that last year was something of a one-off as the invasion of Ukraine led to a short-term bump in commodity prices. Today's results from BHP reflect a move back to something like reality," considered AJ Bell investment director Russ Mould.
BHP noted an "uncertain" outlook for the developed world, but expects China and India to remain "relative sources of stability" for commodity demand. China's trajectory will depend on how effective its recent policy measures are, it added.
"[BHP] is keeping a super-close eye on policy measures to help China's fragile new home sector which is the weak spot in terms of demand for raw materials," said Susannah Streeter, head of money & markets at Hargreaves Lansdown.
"However, other sectors have held up better, such as infrastructure and car manufacturing which have helped keep commodity demand relatively robust. India appears to be the only country with reliable buoyant growth, as Western economies struggle with the lag effect of higher interest rates," Streeter considered.
BHP expects near term demand to be met by a combination of "rising primary and scrap supply". The most likely outcome for the current financial year is set to be a "small surplus" or a "balanced market", with operational disruptions being a "key swing factor".
In the medium and longer term, it expects traditional demand from sectors such as home building, electrical equipment and household appliances to remain "solid". "The decarbonisation mega-trend is expected to bolster demand," it said. However, costs will likely rise as the challenges of developing new resources increase.
By Elizabeth Winter, Alliance News senior markets reporter
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