BHP’s Mike Henry says V-shaped economic recovery unlikely

BHP chief executive Mike Henry says the miner is preparing to trim its sails to weather a marked slowdown in global growth.

BHP chief executive Mike Henry. Picture: Bloomberg

BHP chief executive Mike Henry says a ­­V-shaped recovery from the coronavirus crisis is looking “increasingly unlikely”, with the world’s biggest mining company preparing to trim its sails to weather a marked slowdown in global growth.

Speaking at the Bank of America Global Metals, Mining and Steel Conference on Tuesday night, Mr Henry flagged further cuts in exploration and capital spending at the global mining giant as it looks to cut costs in response to the uncertain outlook for key commodities, including iron ore, copper and oil.

Mr Henry said BHP’s “base case” suggested global growth would stall on the back of the coronavirus crisis, with most economies outside of China likely to struggle to get jobs and growth back on track in the wake of their lockdowns.

“By the end of 2021, our base case has the global economy roughly 4 per cent smaller than it would have been if COVID-19 had not happened,” he said.

“Other than in China, where a V-shaped recovery appears to be under way, we think the recovery will be more protracted elsewhere.”

Mr Henry said BHP was planning for significant falls in demand for steel and copper across the world, and that the company believed it could be more than 18 months before demand for oil recovered to pre-coronavirus levels.

“Tens of millions of people have lost their jobs across developed economies, and more than 1 billion workers in the informal labour markets of developing economies have had their livelihoods affected,” he said.

“Re-establishing disrupted livelihoods will take time and consumption will be inevitably constrained, making a V-shaped recovery increasingly unlikely.”

Mr Henry said the outlook for China was better, if it could avoid a second wave of infections.

“We do think though that if China avoids a second wave, Chinese pig iron production still has the potential to grow slightly this year.

“As for the rest of the world, it is likely that pig iron production will experience a double-digit decline,” he said.

“We expect that copper demand will also fall, but that it will be more resilient than steel, with the impact of COVID-19 on the supply side providing a degree of support for prices. Oil products demand is expected to begin to recover in line with the easing of mobility restrictions, but the level of demand is unlikely to fully recover before the end of the 2021 calendar year.”

BHP pushed back an estimated $US1bn ($1.5bn) in capital spending in its March quarter production report, including delaying a final investment decision on the Woodside-led Scarborough project, pushing back other minor oil and gas projects and a 30 per cent, or $US200m, cut to BHP’s exploration and appraisal spending.

Mr Henry flagged further cuts at BHP’s full-year results, saying the uncertain outlook meant spending cuts would be necessary to preserve cash.

BHP shares closed down 83c, or 2.6 per cent, at $30.72 on Tuesday.