Why should investors look at BHP shares amid iron bull run? 

Summary 

  • BHP Group (ASX:BHP) reported full-year production of iron ore near its top end of the forecast range.
  • The robust annual production has been majorly attributed to the increasing iron ore prices.
  • Resource analysts across the globe believe that iron ore prices will cool down in the second half of 2021.

The most recent news on the BHP Group Ltd. (ASX:BHP) has triggered investor activities, with company share prices gaining more than 1% today. 

As per various media reports, BHP is pondering over divesting its oil and gas assets. The $15 billion worth of petroleum business, estimated to contribute ~$2 billion to earnings this year, is up for sale as attention diverts towards green energy from fossil fuels.    

The announcement came after BHP released its operational update for the quarter and a full year

Must Watch: What are the highest prices of BHP, RIO & FMG?

The quintessential quarterly update

The resource giant's iron ore production for the full financial year ending June 2021 lies at the top end of the forecasted range.

The world’s largest resource miner has produced 253.5Mt of steelmaking material from its business units located in Western Australia over the past yea.

However, BHP recorded nearly 2% less than the previous year's June quarter production, clocking production at 65.2Mt iron ore in the last quarter ending June.

The slight fall in production is primarily attributed to COVID-19 restrictions. Labor shortages and bad weather conditions adversely hit the mine operations.

  

The annual production results were in line with the company's expectations and guidance range of 276-286Mt for the year.

Miners riding on iron ore rally

Source: © Lkeskinen0 | Megapixl.com

Along with other ASX-listed iron ore miners, including Rio Tinto (ASX:RIO) and FMG Group (ASX:FMG), BHP has received a massive boost in their iron ore production in the last year due to robust demand for raw material in the Chinese market after the pandemic.

The supply deficit created due to the strong demand for base metal pushed the iron ore prices to all-time-high levels of US$232 per tonne on 12 May 2021.

Must Watch: How to pick good iron ore stocks?

In addition, the supply disruption in the mines of Brazilian miner Vale SA has also contributed to the declining production volumes, supporting iron ore prices.

Will iron ore continue its rally?

Benchmark iron ore prices remain strong in the past week, playing around US$215 per tonne. However, resource analysts across the globe believe that iron ore prices at this level are relatively unstable.

Source: Copyright © 2021 Kalkine Media

China is the major consumer of iron ore, consuming ~70% of total iron ore produced globally. The country uses most of the iron ore to produce steel. However, the country's most recent efforts to curb steel production are likely to take hold in the coming months, weighing the demand for iron ore.

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The supply from Brazil is also expected to increase in the coming months after the rainy season in the northern part of the country. Improved supply from Brazil and lower demand from China are combinedly expected to moisten the ongoing iron ore rally in the coming future. The rising infection through the delta variant of coronavirus could also subdue the demand for iron ore, weighting prices down.

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