BHP eyes output boost despite lower Chinese demand

BHP reported lower operating profit and net profit, as well net operating cash flow in its 2020 fiscal year ended 30 June (FY20).

The company’s operating profit and net profit were $14.421 billion and $7.956 billion in FY20, down -11% and -4% year-on-year respectively. Net operating cash flow was $15.706 billion, showing a -12% decrease. Free cash flow reached $8.1 billion, Kallanish notes.

The company expects annual global output of crude steel to decrease in calendar-year 2020 by about -6% on-year. In the second half of 2020, due to the impact of a plateau in crude steel production and an increase in scrap utilisation, China’s demand for iron ore could decline.

The company still intends to boost supply, however. It hopes to reach 290 million tonnes/year of shipments in the medium term, and notes that it achieved a production run rate of over 300m t/y in the April-June quarter. Its guidance for production of iron ore in Western Australia is still at 276-286mt for the financial year ending June 2021.

The unit cost of Western Australia Iron Ore (WAIO) in FY20 was $12.63/tonne, down -10.8% y-o-y. The unit cost of metallurgical coal in Queensland, meanwhile, was $67.59/t, down -2.67% y-o-y. The company expects these two to reach $13-14/t and $69-75/t respectively in FY21.

Net debt reached $12.044 million by the end of FY20, up 28% y-o-y. The net debt is at the bottom of its previous guidance of $12-17 billion, however. The firm’s current return on capital employed (ROCE) remained strong, reaching 17%.

Source: Kallanish www.kallanish.com/en