BHP boss says China holds key to the world avoiding recession

BHP boss Mike Henry has warned that US President Donald Trump’s trade tariffs may have a significant impact and will only be mitigated by China’s ability to adapt its economy and keep global trade flowing.

Chinese demand is key to driving the resource giant’s output of Australia’s largest commodity export, iron ore, a trade that analysts say will fade as Trump’s tariffs reduce global growth.

For years iron ore exports have delivered huge profits to BHP, Rio Tinto, Fortescue and other miners, making it the nation’s most lucrative export.

BHP, the world’s largest mining company, each year ships hundreds of millions of tonnes of iron ore from West Australia’s remote Pilbara region to China’s steel mills where blast furnaces churn out the molten metal, a key ingredient of many modern-day consumer goods.

The miner said in a quarterly update on Thursday it has ramped up its copper output by 10 per cent and production of iron ore increased 1 per cent to 193 million tonnes over the financial year to date.

Henry said the $185 billion ASX-listed miner’s copper and iron ore operations achieved a record nine months of production despite challenging operating and market conditions, but he also warned of the possible adverse impact from Trump’s tariffs.

“Despite the limited direct impact of tariffs on BHP, the implication of slower economic growth and a fragmented trading environment could be more significant,” Henry said.

“China’s ability to shift toward a consumption-led economy and for trade flows to adapt to the new environment will be key to sustaining the global outlook.”

For years, iron ore exports have delivered huge profits to BHP, Rio Tinto, Fortescue and other miners, making it the nation’s most lucrative export.

But China’s struggles with its housing oversupply and slumping construction sector, which chews up 30 per cent of its steel demand, coupled with looming barriers to its goods entering the US market are weakening economic activity.

Analysts at UBS, led by Lachlan Shaw, said China’s efforts to stimulate its economy following Trump’s tariff blitz will only “partly offset” a slide in demand.

BHP chief Mike Henry said the miner’s copper and iron ore operations achieved a record nine months of production.Credit: Louis Trerise

“Tightish fundamentals year-to-date on disrupted supply and robust demand are set to ease as tariffs reduce growth,” they said.

UBS expects iron ore surpluses to build in the second half of this year, which could drag prices per tonne down to as a low as $US88 ($138) over the next three years.

Government figures in the latest Resources and Energy Quarterly show Australia’s iron ore exports increased 1.2 per cent year-on-year to 902 million tonnes in 2024.

“Prices are expected to ease over the outlook to 2030 due to softer global demand and rising global supply,” the quarterly report suggests.

It forecasts Australia’s iron ore earnings will decrease in real terms from $117 billion in 2024-25, to $109 billion in 2025-26, and $81 billion in 2029-30, eating into crucial government tax revenue.

BHP said its average realised price per tonne of iron ore was down 21 per cent. Iron ore is trading on global markets at about $US100 a tonne, down from a high of $US136 at the end of 2023.

The UBS analysts said they were cautious about the prospects of iron ore, metallurgical coal (used by blast furnaces to make steel) and lithium (a key component of electric vehicle batteries) where supply is set to exceed demand.

“US tariff policy has increased uncertainty, undermined confidence and is likely to reduce demand and stoke inflation, at least initially. As such, we remain cautious on the [mining] sector and prefer gold, given growth, inflation, geopolitical and economic risks,” they said.

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