BHP’s profits slump 37% due to falling commodity prices and inflation

BHP Group has seen its annual profits shrink by over a third amid weaker commodity prices and inflationary pressures.

The Australian natural resources giant revealed that its underlying attributable profit fell to $13.4billion for the year ending June, compared to the record $23.8billion made in the prior 12 months.

Earnings were impacted by rising diesel and electricity prices, greater staff and contractor costs, and spending associated with the development of the South Flank iron ore mine in Western Australia.

Earnings: BHP Group revealed that its underlying attributable profit fell to $13.4billion for the 12 months ending June due to declining commodity prices and cost pressures

They were also massively affected by sliding copper, iron ore and metallurgical coal prices, which sent turnover plunging by 17 per cent to $53.8billion.

Prices for all three minerals shot up to record levels in the previous 12 months partly because of supply chain challenges developing as loosening Covid-19 restrictions led to economic activity rebounding.

A further boost came from sanctions against the Russian mining sector following the Ukraine war’s escalation, the switch to coal as gas costs soared, and hot weather impacting major importing regions.

Since then, iron ore prices have slid significantly downwards because of lacklustre economic growth in China, where a plunge in new home construction units has suppressed steel volumes.

China’s struggling economy also contributed to significant volatility in copper prices despite BHP’s copper output increasing by 9 per cent thanks to record output at its Olympic Dam operations in South Australia.

BHP still expects the country, as well as India, to ‘remain relative sources of stability for commodity demand,’ although chief executive Mike Henry warned trade in the former territory was ‘contingent on the effectiveness of recent policy measures.’

For the iron ore market, the group said conditions would depend on ‘how effectively China’s stimulus policy is implemented, especially with regards to real estate’ and the timing and severity of steel production cuts.

The Melbourne-headquartered company still forecasts China will produce over a billion tons of steel for the fifth year in succession, following healthy demand in the opening half of 2023 from the shipping, automotive, infrastructure and power machinery industries.

In neighbouring India, whose economy is performing comparatively better, BHP anticipates there will be 135 megatons of iron ore production this year, a 35 per cent increase since the beginning of the decade.

Henry added: ‘Our balance sheet is robust and deliberately positioned to support portfolio growth in commodities the world needs for population growth, urbanisation and decarbonisation.

‘More broadly, there is increased recognition of the importance of critical minerals and strategies across the globe to incentivise investment in supply and demand, which provides opportunities and challenges.’

BHP declared a final dividend of $0.80 per share, less than half the previous year’s amount, although this still represents the third-largest payout in the firm’s history.

BHP Group shares on the London Stock Exchange were 1.2 per cent, or 25.5p, down at 2,176.5p on mid-Tuesday afternoon, meaning they have declined by about 15 per cent so far this year.

This post first appeared on Dailymail.co.uk