BHP Sees Opportunities in Coking Coal, Challenges for Iron Ore Prices -- Commodity Comment

By Will Horner

BHP Group Ltd. left its guidance and production figures unchanged for all commodities as it reported fiscal 2020 results Tuesday. However, the world's largest listed miner by market value said it will seek to exit its thermal coal business to focus more on higher-quality coking coal, which is used in steelmaking.

The Melbourne-headquartered miner was also cautious on the outlook for the commodities it mines, saying that while the initial demand shock due to Covid-19 has likely passed, possible second waves provide a level of uncertainty for the year ahead.

Metallurgical & Energy Coal:

BHP said it will seek to focus on higher-quality coking coals and exit its thermal coal business. The miner's thermal coal activities have been a target of environmentalists concerned about BHP's contribution to climate change.

BHP said energy coal prices look challenging as the growth of coal power energy will be slower than global population growth. What's more, BHP expects coal power to lose out to renewable energy in both China and the rest of the world.

In contrast, while metallurgical coal prices fell sharply as Covid-19 sapped demand in China, BHP predicts a "sustained improvement in prices" in the second half of 2021.

"Over time, premium-quality coking coals are expected to be particularly advantaged given the drive by steelmakers to improve blast furnace productivity, partly to reduce emissions intensity," BHP said.

Iron Ore:

Iron ore prices have been rising since a mine dam collapse at Brumadinho, Brazil in 2019, with strong Chinese demand pushing prices to six-year highs. BHP said, however, that Chinese demand is likely to slow in the second half of 2020 as crude steel production, which uses iron ore, plateaus, while new supply of iron ore from West Africa is increasingly likely. Both factors would weigh on prices.

"This implies that it will be even more important to create competitive advantage and to grow value through driving exceptional operational performance," the miner said.

Copper:

BHP said the pandemic will delay an anticipated deficit in the copper market to the mid to late 2020s and that, in the longer term, demand will be solid and prices would rise thanks to declining copper grades, higher input costs, and a lack of new mine exploration.

Write to Will Horner at [e-mail]

(END) Dow Jones Newswires

August 18, 2020 06:19 ET (10:19 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.