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 points of BHP’s quarterly report?

BHP’s production levels for the March quarter 2020 was overall lower than the December quarter 2019. Petroleum production for the March quarter is down 11% compared with the previous quarter, copper production is down 7% compared with the previous quarter, iron ore production is down 1% compared with the previous quarter, metallurgical coal production is down 16% compared with the previous quarter, energy coal production is down 5% compared with the previous quarter and nickel production is up 55% compared with the previous quarter.

Petroleum production was lower due to increased downtime at Bass Strait caused by adverse weather conditions, planned maintenance at Atlantis and lower seasonal gas sales. Copper production was lower that is mainly attributed to lower production at Escondida due to the impact of expected lower copper grades and lower volumes at Olympic Dam due to unplanned downtime at the smelter. Iron ore production was broadly inline with the previous quarter. Metallurgical coal production was lower due to lower volumes at Queensland Coal due to substantial rainfall in January and February 2020. Energy coal production was down due to lower volumes at Cerrejonas a result of a focus on higher quality products. The one positive from BHP quarter production results was the significant better performance in nickel production. This is attributed to higher volumes following completion of major maintenance activities at the Kwinana refinery and Kalgoorlie smelter in the prior quarter.

 

What is the outlook for BHP?

BHP management notes that steel production ex-china could fall by double digit percentage in the 2020 calendar year. Steelmakers in Europe, Americas, India and Japan have announced or signalled full shutdowns or curtailments in June quarter 2020. 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 US90 per tonne.

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. These demand and supply issues has caused to global WTI crude price to hit US$0 today (21 April 2020). For a moment, the oil price futures fell below US$0, which has never happened before in history.

These key commodity prices are causing pressures for BHP. However, it is important to note that this should be a short-term scenario, commodity prices should normalise once COVID-19 is dealt with globally and there is a return to economic growth.

 

What is the market reaction to BHP quarterly’s activity report?

The market reaction to BHP quarterly activities report is broadly neutral. BHP share price is down 0.7%, which is in line with the market. BHP has a forward P/E in the low-teens and an annual dividend yield of around 5%.

 


 

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April 21, 2020