BHP Group's first-half net profit fell 86% from a year earlier as an oversupply in the nickel market forced the world's largest miner to write down the value of key assets.
The company last week announced a $2.5 billion impairment charge on the value of its Australian nickel assets, which could be reviewed and placed into storage later this year. Global supplies of the metal, which is key to the energy transition through its use in electrification and batteries, have swelled after Indonesia rapidly ramped up production, sending benchmark prices soaring and surpassing at least six Australian projects in the past. The nickel project was shut down. Year.
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“We're going to have a multi-year period of nickel oversupply,” Chief Executive Officer Mike Henry said in a Bloomberg TV interview Tuesday after BHP's results, lasting until the end of this decade. He said it was possible. “What we need to consider with Nickel is, given that Nickel is currently in the red and will be in the red for some time, what are we going to do with the business in the meantime?”
The company reported stable attributable profit from continuing operations of $6.57 billion for the six months ended Dec. 31, slightly below analysts' expectations. Still, the biggest focus for investors was the sharp drop in net income, with the interim dividend cut to 72 cents per share from 90 cents for the previous six months.
Shares in Sydney-based BHP fell as much as 1% on Tuesday and were trading 0.2% lower at A$45.97 at 12:51pm local time.
BHP's earnings have been hit by weaker commodity demand in recent years, a trend that began during the pandemic and continues due to the deteriorating outlook for China's economy, particularly the metal-intensive construction and real estate sector. The company reported its lowest annual profit in three years, just 12 months after hitting record profits last year amid soaring prices.
BHP said on Tuesday that despite a weak housing sector, demand from its key customer China was “healthy” and all assets were on track to meet full-year output and cost targets. The company said in a statement that the six-month reporting period was “challenged”, referring to its nickel assets, “offsetting otherwise strong operating performance and generally healthy commodity prices.”
In a move aimed at supporting the struggling domestic industry, Australia last week added nickel to its list of critical minerals. This will give miners and downstream metals stakeholders access to A$6 billion ($3.9 billion) available through critical mineral facilities. A government fund aimed at putting Australia at the forefront of the green metals transition.
government support
Prime Minister Anthony Albanese said in an interview on Monday that the government was looking at “ways we can provide further support through sensible, targeted and time-bound policies” for the nickel sector.
Still, BHP's Henry said Tuesday that federal tax credits and state-level royalty relief alone may not be enough to prevent the closure of the Nickel West operation, which has not been profitable since 2018. Ta.
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“Given the current nickel price uncertainty, it is difficult for BHP to justify a significant capital expenditure,” RBC Capital Markets analyst Khan Pekar said in an emailed response. He said there was a need to avoid management and maintenance of Australia's nickel assets. He added that the company is seeking “additional government incentives related to the construction of downstream processing infrastructure related to nickel, which is currently considered a critical mineral by the Australian Government.”
Beyond nickel, iron ore remains the company's most important source of revenue. Prices for steelmaking materials soared 28% during the reporting period and remain at historic highs, prompting major producers, including BHP, to consider developing previously stranded deposits.
BHP and its investors are also watching whether China's once insatiable demand for metals can be revived. The country's construction sector is expected to pick up from next month, and the focus will be on whether the Chinese government will inject additional fiscal stimulus to effectively counter the sharp decline. This is due to the collapse of the metal-intensive housing market.
“After a difficult year for both steel and non-ferrous metals demand, the economic outlook for developed countries is expected to improve modestly in the near term,” BHP said in a statement. “China and India are expected to remain relatively stable sources of commodity demand.”
Last week, the company announced it would almost double to $6.5 billion a reserve set aside to cover losses from Brazil's Samarco dam collapse in 2015.
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