BHP Share Price: September Quarter Iron Ore Production Dips (ASX:BHP)

The BHP Group Ltd [ASX:BHP] released its latest operational review for the September quarter, with iron ore production down.

Iron ore production fell 4% year-on-year and 3% quarter-on-quarter.

BHP Group Ltd [ASX:BHP] share price are currently exchanging hands at $38.47 per share, a drop of 1.84% at time of writing.

ASX BHP - BHP Share Price ChartSource: Tradingview.com

Let’s look at BHP’s latest quarterly and later consider how our souring relationship with China can collide with a falling iron ore price to impact our investing strategy.

BHP’s September quarter

BHP’s total iron ore production fell 4% to 63Mt this quarter, although the miner kept guidance for 2022 financial year unchanged at 249–259Mt.

BHP’s Western Australia iron ore production fell by a whole 6%, reflecting higher planned maintenance during the September quarter.

Temporary rail labour shortages attributed to COVID-19-related border restrictions also player a minor role, according to BHP.

The miner did reaffirm ramping up at its South Flank operation continues. Ramp up to full production capacity of 80Mtpa (100% basis) over three years remains unchanged.

BHP Chief Executive Officer Mike Henry said:

BHP’s operations delivered reliably during the first quarter, and we completed planned major maintenance activities across a number of our assets. We continue to skillfully navigate the ongoing challenges of COVID-19.

We progressed the ramp-up of production of high-quality iron ore at South Flank and copper from the Spence Growth Option, and we delivered first nickel sulphate from our new plant at Kwinana.

We sanctioned the Jansen Stage 1 potash project in Canada and made a series of targeted investments in copper and nickel exploration in Australia and Canada.

These are aligned with our efforts to increase our exposure to future facing commodities and to position the portfolio to continue to deliver attractive returns and long-term value to shareholders.

Discover our top three ASX-listed pot stocks in 2021. Click here to learn more.

Iron ore miners and the coming Australia–China divorce

Despite reporting a dip in iron ore production this quarter, BHP remained steadfast in its FY22 guidance.

BHP left all production and unit cost guidance unchanged for the 2022 financial year.

The giant miner expects iron ore production to be between 249 and 259Mt, copper production in the range of 1,590 to 1,760Kt, and petroleum production to be between 99 and 106 MMboe.

BHP also said the proposed merger of its petroleum business with Woodside is progressing to plan, with full form transaction documents expected next month.

Market ScreenerSource: Market Screener

But while the proposed merger with Woodside comes at an opportune time with demand for energy rising, investors are likely pondering the longer-term outlook for iron ore and its impact on BHP’s sales.

As analyst forecasts complied by Market Screener show, BHP’s net sales are expected to drop off after FY22 as the spot price of iron ore is projected to fall.

For instance, the federal government’s Budget Paper for 2021–22 assumes the iron ore price will decline all the way to US$55 per tonne FOB by the end of the March quarter 2022.

Now, while a falling iron ore price has obvious implications for our big miners, it also has deeper ramifications for our economy…and your portfolio.

Iron ore is Australia’s biggest export and China accounts for 80% of our iron ore exports by volume, a perilous situation for Australia’s economy as our divorce from China sours.

With China seeking to diversify away from our exports and Brazil ramping up production, the medium-term outlook for iron ore prices — and Australia’s resources-dependent economy — is bleak.

But the deeper ramification lies with the Reserve Bank, which will likely keep rates at record lows to offset Australia’s falling terms of trade.

The repercussions go well beyond the iron ore miners and the resource sector — what our Editorial Director Greg Canavan calls ‘Life at Zero’, is here to stay, and in his latest report, he shows you how to adjust your portfolio accordingly.

If you are interested, read the report here.

Regards,

Kiryll Prakapenka,

For Money Morning

PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here


Kiryll Prakapenka is an investing autodidact who is passionate about conducting in-depth research on investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from The University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding of the fundamentals behind companies.


Money Morning Australia