Iron Ore Price Rally Tail Winds Aid BHP Group Post Strong Performance in FY20

  • Jul 22, 2020 AEST
  • Team Kalkine
Iron Ore Price Rally Tail Winds Aid BHP Group Post Strong Performance in FY20

Summary

  • The Iron ore rally has supported the share price of many ASX-listed iron ore mining companies.
  • The high prices have prompted many miners to focus on the production scenario to lock in a high price, Fortescue Metals Group Limited (ASX:FMG) previously upgraded its shipment guidance from 175 million tonnes to 177 million tonnes, and now, BHP Group Limited (ASX:BHP) follow suit.
  • Furthermore, the Chinese steel industry, a primary catalyst behind the iron ore rally is anticipated by BHP to perform strongly ahead.
  • BHP presents FY2020 operational review

Iron ore prices have shown an impeccable rally until now with prices of Iron Ore Futures reaching a new 52-week high of RMB 845.0 per dry metric tonne on 14 July 2020.  Every uptick in iron ore prices is further contributing towards the momentum of ASX-listed iron ore stocks such as Fortescue Metals Group Limited (ASX:FMG), BHP Group Limited (ASX:BHP).

Also Read: Iron Ore- The Rally From 15-Week High to a 52-Week High

The high iron ore prices are prompting the domestic miners to boost the production, which could be inferred from the increasing guidance and high quarterly and yearly production. For example, in the recent past, FMG upgraded its shipment guidance from 175 million tonnes to 177 million tonnes, and the stock of the Company gained tremendous interest from the investing community over robust financial results.

To Know More, Do Read: Large Cap Blue Chip Iron Ore Company Basking under Mega Iron Ore Rally

After FMG, it is BHP Group, which is now breaking headlines over its recent rush in stock prices, which took it to a 20-week high of $38.830 (as on 21 July 2020) on the exchange. The Company released its operational review for the financial year ended 30 June 2020, which further reflected high iron ore production figures and BHP’s prudence in China.

  • China is currently the main driver of both gold and iron ore, top-performing commodities of the year so far.

To Know How, Do Read: China- The Catalyst to Gold and Iron Ore Rally

BHP FY20 Operational Review

BHP produced 248 million tonnes of iron ore in FY2020, up by 4 per cent against the previous financial year.

  • The June 2020 quarterly production rose by 7 per cent against the previous corresponding period and 11 per cent against the previous quarter to stand at 66 million tonnes.
  • On a 100 per cent basis, the total iron ore production reached 281 million tonnes.

The WAIO operations of the Company achieved record production, with higher volumes reflecting record production at Jimblebar and Yandi.

  • BHP also suggested that the weather impact of the Tropical Cyclone Blake and Damien was offset by strong performance across the supply chain.
  • A strong performance along with reliability following a series of targeted maintenance programs over the past four years further enabled WAIO to produce a record annualised run rate of more than 300 million tonnes (100 per cent basis) during the June 2020 quarter.
  • Furthermore, BHP improved the specification of Jimblebar fines to over 60 per cent Fe grade for the same period.

Apart from higher production, FY2020 also witnessed a high average realised price on sales with BHP recognising USD 77.36 on per wet metric tonne of iron ore on the Free-on-Board (or FOB) basis.

  • The average realised price for FY2020 remained 16 per cent up against the previous financial year average realised price of USD 66.68 per wet metric tonne on FOB basis.

However, while the iron ore segment witnessed a higher selling price due to the rush in iron ore prices across the international front, other segments of the Company realised comparatively weak prices in FY2020 against FY2019.

A Snippet of Average Realised Price on Sales (Source: Company’s Report)

A Snippet of Average Realised Price on Sales (Source: Company’s Report)

WAIO operations performed strongly during the June 2020 quarter and the resumption of WAIO to normal shift rosters along with the relocation of over 900 employees & contractors in business-critical roles to WA could further ensure smooth operations.

  • While WAIO is poised to emerge from the impact of interstate travel ban and Tropical Cyclone Blake and Damien, the Company seems to be placing a strong bet on China, which is currently the largest buyer of the Australia iron ore supply.

BHP Optimistic on China

The Company maintained its view on the Chinese steel industry; however, anticipates that the steel production ex-China could contract by a double-digit percentage in the CY2020 and suggested that the capacity utilisation ex-China fell to between 50 and 60 per cent during the June 2020 quarter.

  • Despite a decline in the global steel demand and production, China kept the steel furnaces hot to capture a large tranche of the global steel industry.

To Know More, Do Read: China Poised to Grab the Global Steel Trade as Economies Open up for Trade

  • The blast furnace utilisation rates increased from around 80 per cent earlier in February 2020 to above 90 per cent in June 2020 across China, while the daily rebar transactions were above normal seasonal levels for much of the June 2020 quarter, enabling a crude steel run-rate of 1,117 million tonnes per annum in June 2020.

Over such a strong performance of the Chinese steel industry, the Company remains confident that the steel market across China would remain strong, which in turn, could provide a cushion to iron ore prices.

In a nutshell, the iron ore market remains strong so far, which in turn, is providing impetus to ASX-listed iron ore stocks, and after FMG, now BHP is catching the eye of the investing community over its high FY2020 production and higher realised price on sales, which could be inferred from the recent rush in the stock price.

Furthermore, the Chinese steel industry, which has primarily been the main driver behind the iron ore rally, is anticipated by BHP to perform strongly ahead, which could provide a cushion to iron ore demand and prices.

 


Disclaimer
The website https://kalkinemedia.com/au is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) or engage in any investment activity under discussion. We are neither licensed nor qualified to provide investment advice through this platform. All pictures are copyright to their respective owner(s). Kalkinemedia.com does not claim ownership of any of the pictures displayed on this website unless stated otherwise. Some of the images used on this website are taken from the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image.

 

There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.

As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.

CLICK HERE FOR YOUR FREE REPORT!
   
x
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK