World’s largest miner expresses concern about Chinese growth

China’s demand for commodities including iron ore and copper is uncertain in the coming months and largely depends on how effective Chinese policies to jumpstart the underwhelming economic growth and property sector will be, BHP, the world’s largest miner by market capitalization, said this week, OilPrice.com writes.

In its results for the fiscal year 2022/2023 ended 30 June, BHP reported lower revenues and earnings, primarily as a result of significantly lower prices across iron ore, metallurgical coal, and copper markets. 

“Commodity demand has remained relatively robust in China and India even as developed world economies have slowed substantially,” BHP said, but acknowledged that China’s economy grew at a slower-than-expected pace in the second quarter of 2023.  

“Anti-inflationary policies have slowed demand in the developed world,” BHP’s chief executive Mike Henry said on the results presentation. 

“And while China and India have been a source of relative stability for commodities demand over the last six months as expected, momentum in China has slowed,” Henry added. 

So far this year, weaker-than-expected Chinese economic data have stopped crude oil price rallies in their tracks. U.S. economic prospects have turned somewhat brighter, with the Fed and investment banks no longer expecting a recession. 

Brent oil prices haven’t seen a sustained move above $85 per barrel as China continues to report weak economic data. Concerns about the property and credit markets in the world’s second-largest economy also weigh on sentiment in the commodity markets. 

Considering that China is expected to account for more than 70 per cent of this year's global oil demand growth, the worries about the Chinese economy are top of the bearish factors for oil. 

China’s demand for oil and other commodities, especially iron ore, will hinge on how its economy will fare in the next few months, how effective the government’s measures to revive growth will be, and whether the Chinese authorities will roll out additional stimulus to support the real estate sector, analysts and BHP’s executives say.  

“In the near term, China’s trajectory is contingent on the effectiveness of recent policy measures,” the world’s biggest miner by market cap said. 

Green energy infrastructure and automobile sectors continue to do well, but the key sector for steel – and thus iron ore – demand is the property sector, where new housing starts are lagging, CEO Henry told Bloomberg Television in an interview. 

In the FY 2023 results presentation, Henry noted that in China “Low-carbon technology sectors are booming, infrastructure investment is strong, housing completions are growing 19 per cent year-on-year, and autos and consumer durable sales are healthy.”

“As a result of all of this, we’ve revised our 2023 forecasts for Chinese steel expectations down, but our copper projections up.” 

If China’s property market continues to show weakness, iron ore demand elsewhere will not be able to offset weaker iron ore and steel demand in the world’s second-largest economy, BHP says. 

In its commodity review and outlook, the mining giant said “In the iron ore market, conditions were better in the second half of FY23 than in the first half, but there are two key uncertainties for the coming six months. The first is how effectively China’s stimulus policy is implemented, especially with regards to real estate. The second revolves around the breadth, timing and severity of any mandated steel production cuts.” 

In copper markets, volatile prices so far this year were the result of “two-way fluctuations based on expectations of China’s recovery, and mounting demand risks in the OECD, with indicators of manufacturing weakness widespread,” BHP said. 

Global copper demand in the near term is expected to be met by a combination of rising primary and scrap supply. The market this year will be either balanced or in a small surplus, the miner said. 

The long-term prospects for copper are promising as the decarbonization drive will boost demand, said BHP, adding, “We anticipate that the industry is likely to enter the final third of this decade with a low inventory buffer, and therefore elevated prices may endure throughout this period.”