BHP Sees Robust Prices As Covid Vaccine Rolled Out -- Commodity Comment
February 15 2021 - 5:40PM
Dow Jones News
By Rhiannon Hoyle
BHP Group Ltd. on Tuesday recorded a 16% lift in first-half
underlying profit in large part because of higher iron ore and
copper prices. Here are some remarks on world commodity markets
from that report.
On commodity prices:
"The deployment of vaccines in key economies, albeit with some
uncertainty as to timing and efficacy, removes a material amount of
downside risk to the short term demand and price outlook for our
portfolio commodities. With Chinese demand looking robust and the
rest of the world on an improving trajectory, a precondition for
maintaining robust price performance is in place. Where the price
recovery is more nascent, there is potential for a further
uplift."
On steel:
"Global crude steel production was unbalanced in the 2020
calendar year, with strong growth in China offset by a steep fall
in ROW [rest of world]. We note the momentum in ROW has been
picking up markedly, with average utilisation rates now close to
pre-Covid levels, while margins are benefiting from higher prices.
In the 2021 calendar year, we anticipate a continuation of strong
end-use demand conditions in China and ongoing recovery in the rest
of world. Over the long term, we anticipate that global steel
production will expand at a similar rate to population growth in
coming decades, with a plateau and then slow decline in China
offset by growth in the developing world, led by India."
On iron ore:
"Iron ore prices have been elevated since the Brumadinho
tailings dam tragedy in Brazil first disrupted the market in early
2019. Conditions were particularly tight in the second half of the
2020 calendar year. The combined impact of very strong Chinese pig
iron production and Brazilian exports being unable to lift
materially from depressed levels in the 2019 calendar year
outweighed record shipments from Australia. Our analysis indicates
that before prices can correct meaningfully from their current high
levels, one or both of the Chinese demand/Brazilian supply factors
will need to change materially."
On metallurgical coal:
"Metallurgical coal prices faced by Australian producers in the
free-on-board market have been weak. A steep, Covid-19 induced
decline in ROW demand, which normally comprises around four-fifths
of the seaborne trade, was the major factor driving lower prices
for much of the 2020 calendar year, with China serving as the
effective clearing market. However, late in the 2020 calendar year,
these positions reversed, with ROW demand beginning to improve,
while uncertainty about China's import policy towards Australian
coals spiked. Trade flows are adjusting to account for the
available opportunities. The industry faces a difficult and
uncertain period ahead. Long term, we believe that a wholesale
shift away from blast furnace steel making, which depends on
metallurgical coal, is still decades in the future."
On thermal coal:
"Energy coal prices recovered from their Covid-19 induced lows
late in the 2020 calendar year, assisted by a pick-up in demand due
to cold weather in North Asia and a bounce in Indian industrial
activity. China's policy in respect of energy coal imports remains
a key uncertainty."
On copper:
"Copper prices have been strong in recent times. With ROW demand
recovering and China continuing to perform well, the short term
outlook for demand is constructive. On the supply side, we note
near term risks from the escalation of Covid-19 cases in Chile, and
the fact that a number of wage negotiations at Chilean mines are
scheduled for the current calendar year, spread across both halves.
Longer term, end-use demand is expected to be solid, while broad
exposure to the electrification mega-trend offers attractive
upside."
On nickel:
"Nickel prices have been driven by positive sentiment towards
pro-growth assets, supply uncertainty and a strong rebound from the
battery-electric vehicle complex in the second half of the 2020
calendar year. Longer term, we believe that nickel will be a
substantial beneficiary of the global electrification mega-trend
and that nickel sulphides will be particularly attractive given the
relatively lower cost of production of battery-suitable class-1
nickel than for laterites, which are expected to set the long-run
nickel price. This view is supported by our assessment of the
likely rate of growth in EVs and of the likely battery chemistry
that will underpin this. We have revised our already aggressive
long run EV ranges to reflect even more supportive policy, such as
accelerated bans for internal combustion engine vehicles in Europe,
the policy platform of the Biden administration and net zero
objectives in China, Japan and South Korea."
On oil:
"Crude oil prices have recovered to around US$60 per barrel
range. Our base case is that prices should build upon their recent
recovery, but the pace of gains is likely going to be modest
initially given potential headwinds from currently curtailed supply
returning. However, if we look beyond this phase, our bottom-up
analysis of demand, allied to systematic field decline rates,
points to a long run structural demand-supply gap. Considerable
investment in conventional oil is going to be required to fill that
gap."
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
February 15, 2021 17:25 ET (22:25 GMT)
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