BHP warns of slowing global growth as monetary policy tightens

BHP, the world’s largest resources company, has warned of economic headwinds during the next year, signalling that the sharp fall in commodity prices is darkening the outlook for the world’s biggest miners.

While it predicted that its biggest customer China would grow as stimulus policies take effect, the Australia-based miner expects Europe’s energy crisis, the war in Ukraine and tighter monetary policy to result in an “overall slowing of global growth.”

“Broader market volatility continues and we expect the lag effect of inflationary pressures to continue through the 2023 financial year, along with labour market tightness and supply chain constraints,” chief executive Mike Henry said in a trading update on Tuesday.

Henry’s comments echo remarks made last week by rival Rio Tinto, which also warned of “considerable” headwinds and said growing recession fears had dented commodity prices.

The threat of a demand-sapping recession has hammered raw materials prices in recent months. Iron ore, the biggest source of income for BHP and Rio, recently dropped below $100 a tonne for the first time this year, while copper plunged to a 20-month low below $7,000 a tonne last week.

That has weighed on share prices across the sector with BHP and Rio both down by more than a fifth from a June peak.

Tuesday’s update showed a strong performance from BHP in copper and coal offset by a disappointing result in other metals, including iron ore, its main source of profits.

BHP said its produced 253.2mn tonnes of iron ore in the year to June, unchanged from the year before and expects to mine between 249mn and 260mn tonnes of the steel making ingredient in the year ahead, a forecast that disappointed some analysts.

RBC Capital analyst Tyler Broda said the “soft” production guidance for 2023 would “take the shine off” a monumental year for BHP when it spun out its oil and gas operations via a merger with Woodside and unified its share structure.

BHP also sold its 80 per cent interest in BHP Mitsui Coal, which operates the South Walker Creek and Poitrel coking coal mines in Queensland, for $1.35bn.

The company said on Tuesday that it would review its remaining operations in Queensland following the introduction of a new three-tier royalty rate in the state this month.

The move has angered the mining industry, which was not consulted over the Queensland government’s decision to take advantage of high coal prices to boost public spending in the region.

It also earned a rebuke from Japan’s ambassador to Australia, who in a rare political intervention said this month that investment in the country could be damaged by the move. Japanese companies Mitsubishi and Mitsui both have operations in the state.

BHP has already unwound most of its thermal coal production, used to generate electricity, but has kept hold of its metallurgical coal assets which supply steelmakers.

“The near tripling of top-end royalties has worsened what was already one of the world’s highest coal royalty regimes, threatening investment and jobs in the state,” said Henry.