Jessica Amir
Market Strategist
Summary: BHP, the world’s biggest miner handed down its results showing profits declined greater than expected in the six months to December 2022, but BHP’s CFO told Saxo’s Jessica Amir, BHP sees a recovery in pricing in the second half year and into 2024, with the price recovery having already begun.
The world’s biggest miner, BHP handed down its financial results today - showing profits declined greater than expected – in the six months to December 2022 – but BHP’s CFO told Saxo’s Jessica Amir - it sees a recovery in metal pricing in the second half year and into next year - and the price recovery has already begun. This is also our view at Saxo - we also believe 2023 is poised for higher commodity prices amid China's economic revival- as we expressed in our Quarterly Outlook.
BHP's half year results to 2022 end were impacted by lower realized prices in copper, iron ore and coal across the last six months of 2022. Wet weather also impacted its coal business’ production and pushed up unit costs – plus there were difficulties in securing enough staff. This resulted in underlying attributable profit falling to $6.6 billion - from continuing operations - vs the $6.96 billion expected by consensus.
As for BHP’s positive outlook strengthening – it sees demand picking up in China, but also in India - and this offsetting the slowdown in trade with the US, Japan and Europe.
All in all, BHP guided for mining production costs to be markedly higher than before the Covid-19 pandemic – amid higher energy, labour and other input costs. But we believe BHP could offset such higher costs - amid rising commodity demand - which would underpin prices in iron ore, met coal, and copper - while supply issues remain and the green transformation picks up.
BHP’s divestment of its two thermal coal mines should also return capital to the business and allow BHP to focus on iron ore, copper, nickel, potash and coking coal.
For more on BHP refer to our Quarterly Outlook. Or refer to Saxo’s Australian Resources equity theme basket or Saxo’s broader Commodity equity theme basket.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
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