BHP economic analysis prepares for US recession


PERTH ( – China is expected to remain the mainstay of diversified miner BHP’s future plans, but the miner has raised concerns about a possible recession in the United States and other developed markets in the near term.

BHP VP for Market Analysis and Economics Dr huw mckay said a recession in the United States and other developed markets was “within the range of possibilities” envisioned by BHP.

“Our baseline scenario for the 2023 timeline is that for the United States, avoiding a sharp rise in involuntary unemployment, the key marker of a recession, is a manageable task. Europe, meanwhile, faces a more worrying constellation of negative factors, including sovereign debt risks as bond yields rise, as well as an energy crisis.In the developing world excluding China, tighter financial conditions as well as rising commodity prices Food and fuel portend challenges, especially for regions where depreciated exchange rates, high external debt and balance of payments problems have resulted in a loss of monetary independence,” McKay said.

For China, the picture is mixed, with both upside and downside risks to consider, he added.

“On the other hand, the possibility of further lockdowns interrupting growth cannot be ruled out as long as there is an immunity gap in the population and the zero-Covid scheme remains in place. Exports are also expected to slow.

“On the positive side, substantial policy support for growth has been in place, dating back to the end of calendar year 2021, and this is already showing in sectors like automotive and infrastructure. As always, the test will be how the real estate sector reacts.

“Overall, we are confident enough to say that at a minimum, China will be a source of stability over the coming year. real estate is effectively debottlenecking,” McKay added.

For 2023, BHP believed that the annual average price-weighted directional risks of its diversified portfolio would be balanced or slightly downward tilted, a view which McKay said was partly based on the lower starting point created by the depreciation. substantial price already observed during the year for Date.

“These developments have highlighted the intrinsic vulnerability of ‘bumpy’ prices to modest improvements in supply conditions or significant changes in demand conditions, whether actual or expected.

“Beyond the slowdown in demand outside China, the observed turning point in the Chinese political cycle, continued bilateral uncertainty over FSU trade flows, a series of operational challenges in key mining jurisdictions and the fact that operating cost curves have risen and steepened by the global inflation shock, are all relevant considerations when thinking about possible short-term price developments. industry scale has increased real-time price support well above pre-pandemic levels for many commodities in which we operate,” McKay said.

He noted that the lag effect of these inflationary pressures is likely to remain a challenge in fiscal 2023, with tight labor and energy markets now outpacing manufacturing supply chain constraints. and logistics as the most pressing forward-looking concerns.

“We expect the supply-demand balance to come out of the copper and nickel deficit as supply conditions improve, more so in nickel, in both commodities, as does demand worldwide ex -China is running out of steam, more so in copper, and the slowdown in ex-China is happening before the easing of Chinese policy has fully produced the expected impact.

“Iron Ore posted a sizable surplus in the first half of fiscal 2022, before tightening somewhat in the second half. Overall, it looks likely to be in surplus for the full year. 2023. On the supply side, this view assumes stronger overall operational performance by shipping majors than we have seen in recent history, as well as a recovery in scrap availability.

“Metallurgical coal prices hit all-time highs in the second half of fiscal 2022 on the back of strong demand outside of China and multi-regional and multi-causal supply disruptions. These “soaring” prices partially collapsed in early fiscal 2023 as some sources of disruption have subsided and steel markets outside of China have weakened significantly in the face of broader macroeconomic headwinds.

“Chinese import policies remain a key uncertainty for metallurgical and energy coal. high demand conditions The balance is expected to remain tight at least through the coming northern hemisphere winter, with energy security issues paramount.

McKay noted that potash prices rose rapidly in the second half of fiscal 2022 due to the credible threat of outright physical shortages. The strong agricultural economy coupled with the loss of shipments from Belarus and, to a lesser extent, Russia created a truly perfect storm, he added.

“The regional price structure at the end of fiscal 2022 is obviously sensitive to any signs of a return to more normal levels of total FSU exports. Even so, with crop prices equally high, the affordability of potash , while stretched, is nowhere near as bad as it was at the height of the last big price run.

Beyond the immediate medium-term picture, BHP said there would be a need for additional supply, both new and replacement, to be induced across many of the sectors in which we operate.

McKay noted that after a years-long period of adjustment in which demand rebalances and supply recalibrates to the unique circumstances created by Covid-19, the war in Ukraine and the global inflationary shock, BHP predicted that geologically higher cost production would be required. to enter the supply stack of BHP’s favorite growth commodities over the decade.

“The predicted secular steepening of some industry cost curves we watch, which may be amplified as resource nationalism, supply chain diversification and localization, carbon pricing and other Forms of “greenflation” become more influential themes in demand and supply centers, can reasonably should reward disciplined and sustainable owner-operators with higher quality assets with built-in, capital-efficient options.

“We confidently say that the basic elements of our positive long-term vision remain in place,” McKay said.

He noted that population growth, urbanization, decarbonizing infrastructure and rising living standards are all expected to drive demand for steel, non-ferrous metals and fertilizers for decades to come.


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