BHP says China to ‘stabilise’ commodity demand in 2023

BHP, the world’s largest mining company, said China would act as a “stabilising force” for commodity demand this year as Beijing’s pro-growth policies offset weak economic performance in other developed markets.

The Australian resources company said on Thursday that China’s reversal of Covid-19 restrictions and stimulus for the property sector, a key driver of iron ore demand, would support “progressive improvement from the difficult economic conditions of the first half”.

The company reported record iron ore production for its fiscal first half, producing 132mn tons of the steelmaking material. BHP’s shares in Australia closed up 1.2 per cent.

“BHP believes China will be a stabilising force when it comes to commodity demand in the 2023 calendar year, with OECD nations experiencing economic headwinds,” said Mike Henry, chief executive of BHP.

The confident outlook on China comes after Beijing abandoned harsh pandemic restrictions that had slowed growth in the world’s second-largest economy. Xi Jinping’s government is seeking to end its international isolation and jump-start activity.

As part of this policy reset, Australia’s first coal shipments to China in two years are expected to arrive next month, effectively ending a ban on coal trade and signalling a diplomatic thaw between the two commodities superpowers.

In 2020, Beijing imposed an unofficial ban on coal imports from Australia — which had previously sent around one-fifth of its coal to China — after Australia joined a security pact with the US and UK.

Now, Chinese companies have started to buy Australian coal again and the first cargoes are already on route, according to shipment data from KPLER, a data provider.

Glencore is understood to be among the miners that have sold Australian coal to China following the thaw in diplomatic ties. BHP used to be a substantial exporter of coal to China before the ban but has since directed its shipments to Japan and India.

Miners and analysts cautioned, however, that the Australia-China coal trade was not likely to return to pre-pandemic levels.

For metallurgical coal, which is used to make steel, China has found new sources in Russia and Mongolia, which have helped to make up the volumes once supplied by Australia, according to Dmitry Popov, coal analyst at consultancy CRU Group.

“Our expectation is that it is attractive for China to buy Australian coal and we think that demand for Australian coal will pick up,” said Popov. “However, we don’t think the trade will come back to pre-pandemic levels.”

For thermal coal, China has boosted domestic production and is also importing more from Indonesia. At the same time, Australian coal exports were limited last year by logistical challenges and heavy rainfall.

One significant Australian coal producer welcomed the easing of the ban. “China is a massive market . . . and by definition, if you can’t sell to China, you are at a disadvantage,” the producer said. “The more markets you have, the better it is for a seller.”