BHP Lifts Outlook, Pays Record Dividend During Supercycle Talk

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BHP Lifts Outlook, Pays Record Dividend During Supercycle Talk
Credit: © Reuters.

(Bloomberg) -- BHP Group (NYSE: BHP ) boosted its outlook for the global economy as the rollout of Covid-19 vaccines gathers pace, backing its optimism by rewarding investors with a record $5.1 billion first-half dividend payout and fueling expectations for a new commodities supercycle.

“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,” the company said Tuesday when reporting a 16% lift in first-half profit.

The biggest miner’s comments come as talk of a burgeoning commodities’ boom gathers pace with JPMorgan Chase & Co (NYSE: JPM ) saying a new supercycle may have begun. On the broader stage, global equities are on course to rise for 11 straight sessions -- the longest stretch since 2009 -- as investors take comfort in progress on the Covid-19 vaccine rollout.

“With Chinese demand looking robust and the rest of the world (ROW) 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,” BHP said.

Read: Commodity Supercycle Talk Is About to Be Put to the Test

Iron ore futures surged 70% last year, boosted by China’s stimulus-driven recovery and supply disruptions in Brazil. “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,” BHP said.

“Buoyant iron ore prices underpin strong upgrade momentum for BHP,” analysts at Macquarie Group (OTC: MQBKY ) Ltd said in a report, while noting that the underlying profit result was below the bank’s forecast. The steel-making ingredient accounted for about 70% of earnings in the first half.

Still, BHP said China’s demand for iron ore was likely to be lower in the second half of 2021 as crude steel production plateaus and scrap-to-steel ratios rise. China’s ore stockpiles hit their highest since November heading into the lunar new year holiday, while Beijing has also pledged to rein in steel output this year.

BHP also expects a “constructive” short-term demand outlook for copper , which is seen benefiting from the shift to cleaner energy. The metal climbed to its highest level since 2012 on Monday. There was also potential for supply disruptions in key producer Chile, due to an escalation of Covid cases there.

“The energy transition that the world must effect will also be relatively commodity intensive -- it’s going to mean increased demand for many of the commodities BHP produces,” Chief Executive Officer Mike Henry said on a media call when asked about the liklihood of a new supercycle. Add to that the lack of exploration success and investment across the minerals and oil and gas sectors in recent years and “it points to a pretty constructive future for commodities,” he said.

BHP shares rose as much as 2.5% in Sydney on Tuesday, while its main rival Rio Tinto (NYSE: RIO ) Group added up to 3.8%.

©2021 Bloomberg L.P.

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