BHP Group Ltd (ASX: BHP) is Australia’s largest resource company that specialises in extracting and processing minerals, oil and gas. BHP main operations are within Australia and the Americas. BHP has a market capitalisation of A$92 billion.
What are the key features from BHP quarterly report?
Petroleum production for 4Q20 is 26 MMboe, down 5% from 3Q20 and down 10% from FY19. Copper for 4Q20 is 414 Kt, down 3% from 3Q20 and up 2% from FY19. Iron ore for 4Q20 is 67 Mt, up 11% from 3Q20 and up 4% from FY19. Metallurgical coal for Q420 is 12 Mt, up 26% from 3Q20 and down 3% from FY19. Energy coal for 4Q20 is 6 Mt, down 2% from 3Q20 and down 16% from FY19. Nickel for 4Q20 is 24 Kt, up 14% from 3Q20 and down 8% from FY19.
The increase in production in petroleum in 4Q20 was mainly attributed to increased production at Bass Strait due to higher seasonal demand. However, this was partially offset by lower volumes at Atlantis due to a planned maintenance and preparation work for Phase 3 project commissioning. The decrease in production in copper in 4Q20 was mainly attributed to lower production at Antamina due to temporary suspension in response to COVID-19. Iron ore production was up due to higher volumes reflecting strong production levels at mining area C and Yandi and strong supply chain performance. Metallurgical coal production is up in 4Q20 due to higher volumes at Queensland Coal and at Poitrel mine, following significant wet weather events impacting operations in the prior quarter. Energy Coal production in 4Q20 is down due to lower volumes at Cerrejon as a result of a temporary shutdown in response to COVID-19. Finally, Nickel production in 4Q20 is up due to higher volumes following ramp back up to full capacity at the Kwinana refinery and Kalgoorlie smelter during the prior quarter.
What is the outlook for BHP?
BHP management notes that steel production in China could contract by double-digit percentage in the 2020 calendar year. It is estimated that capacity utilisation ex-China fell to between 50% and 60% across the June quarter. In addition, steel makers from other regions, including Europe, the Americas, India and Japan have cut production. This reflect logistical difficulties created by COVID-19 (e.g. inter-state labour availability in India) as well as collapsing demand in downstream industries, such as automotive (e.g. Europe and Japan). This could cause demand for iron ore to fall in the 2020 calendar year. The one positive outlook for iron ore over the short-term is that demand from China is expected to pick up in the later end of 2020 calendar year, if China avoids a second wave of COVID-19. At least to date, the iron ore price in US dollar terms has remained surprising firm at around US$107 per tonne. The iron ore price is so strong due to production problems in Brazil.
Regarding global oil prices, during March, global oil prices slumped. This was attributed to OPEC and non-OPEC (Russia) oil producers engaging in a production war as an agreement was not met between the producers. This excess in supply, coupled with a fall in global oil demand is causing global oil prices to significantly fall. Since then, oil prices in May and June have improved. BHP management note that the most significant risk to the oil market has passed. However, the return to normalised demand levels are not expected to occur before the end of 2021 calendar year.
What is the market reaction to BHP quarterly report?
The market reaction to BHP’s quarterly activates report is broadly neutral. BHP’s share price is flat and is currently trading at A$38.31. This market reaction is negative as the Australian market is up around 0.8%. BHP is trading at a forward P/E ratio in the mid-teens and has an annual dividend yield of around 4.5%.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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