BHP keeps iron ore guidance amid China steel strength

UK-Australian mining company BHP has maintained its iron ore production guidance at 276mn-286mn t in the July 2020 to June 2021 financial year, but is warning of a double-digit percentage drop in steel production outside of China.

BHP produced 281mn t of iron ore in 2019-20. It operated at a run rate of over 300mn t/yr in April-June but said a major maintenance programme on one of its car dumpers at Port Hedland in the Pilbara region of Western Australia (WA) would impact production in July-September.

China can produce more steel and pig iron in 2020 than in 2019, assuming it can avoid a second wave of Covid-19, BHP said. But it warns that steel production is likely to decrease by more than 10pc outside of China, with utilisation rates falling to 50-60pc in April-June. The weakness in the iron ore market outside of China is less important for price formation than in other commodities, it added.

BHP sells around 80pc of its iron ore to China, initial shipping data indicate. It achieved an average iron ore price of $76.67/wet metric tonne (wmt) fob Port Hedland in January-June, down from $78.30/wmt in July-December 2019. Argus last assessed the 62pc Fe price at $108.95/dry metric tonne (dmt) cfr Qingdao on 20 July, down slightly from an 11-month high of $112.40/dmt on 14 July.

BHP achieved an average grade of above 60pc Fe in April-June for its Jimblebar Fines, after the lower-grade ore weighed on realised prices for July-December. Production from Jimblebar increased in April-June after a weak January-March, with record production at Area C and Yandi during the most recent quarter.

BHP expects its cash costs to be within its guidance of $13-14/t for the 2019-20 financial year. It has returned to normal operating rosters in WA as Covid-19 restrictions are eased and its Perth office has reopened.

BHP ran down its WA stocks during April-June by shipping around 1.4mn t more than it produced on an equity basis.

The company is investing $3.06bn to develop the 80mn t/yr South Flank mine in the Pilbara to replace production from its Yandi iron ore mine, with first output expected in mid-2021. The South Flank iron ore project was 76pc completed as of 30 June and is on schedule and on budget, despite the pandemic.

But the coronavirus outbreak has halted all but critical activities related to the firm's closed Samarco mine joint venture in Brazil, and work on restarting the mine has slowed. This has reduced the chances of the 24mn t/yr mine, a joint venture with Brazilian mining firm Vale, returning to small-scale operations this year.

By Jo Clarke