‘Strong relations’ protect iron ore as BHP offloads its China coal
BHP boss Mike Henry says all of the company’s China-bound coal is now finding new customers.
BHP boss Mike Henry says all of the company’s China-bound coal is now finding new customers, amid an ongoing ban on Australian imports into the country, and that “strong relations” with Chinese iron ore customers are helping protect Australia’s biggest export earner.
Speaking at a retail shareholder question and answer session on Thursday, Mr Henry said BHP had run contingency planning over scenarios in which China’s trade bans were extended to iron ore, BHP’s biggest profit centre, but the company was confident its relationships with Chinese customers were strong enough to withstand ongoing tensions between Beijing and Canberra.
“We obviously run a number of scenarios, and we look at what would happen if this was to be prolonged, what would it mean if it actually flowed across into iron ore and other areas,” he said.
“But we need to ultimately manage what we can control. And that’s around on-the-ground relationships with customers, which is still very sound.
“That’s contributing to the fact that we’ve been able to get our iron ore into China despite the trade tensions.”
This week’s blip in the iron ore price, amid temporary steel output curbs in highly polluted Chinese production centres, has again raised fears that iron ore’s bull run is coming to an end.
While the strong price run since 2019 has delivered bumper profits and returns to shareholders, new chief financial officer David Lamont told shareholders they should expect prices to fall at some point.
“If you look out in the medium to longer term, we don’t think that pricing level is necessarily sustained and it will come back to more long-term pricing,” he said.
Despite a recent recovery in coal prices, Mr Henry said the hit the company had taken after Chinese coal bans was lingering, despite the fact its marketing team had found new customers for its thermal and metallurgical coal.
“Around about 25 per cent to 30 per cent of our coal historically has gone into China. So all credit here to our commercial team, whereby they’ve been able to pivot the business quickly and find other avenues for our outlets for that,” he said.
“Now it has been at a lower price. And certainly, we’ve had the impact of that. But it was significant that we were able to transition to find other homes for those products.”
Mr Lamont said that would be offset by BHP’s broader portfolio, amid expectations that gas prices would recover in the medium term and copper was about to enter a strong decade of growth in demand.
But, while most mining majors are grappling with falling copper grades and a lack of genuine growth opportunities in the commodity, Mr Henry all but ruled out any move by BHP to buy operating or near-term development projects in BHP’s preferred “future-facing” commodities such as copper, saying asset prices were too rich for BHP’s liking.
“Right now, that’s looking a little bit tougher because of the higher asset prices. So it means even more focused on exploration, early stage entry and innovation,” he said.
Mr Henry said the company’s long-term plans to move more of its workforce in-house remained on track, reiterating his long-term ambition to double the size of BHP’s permanent workforce, and reduce its reliance on contract labour.
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