BHP Profit Slumps 23% Amid China's Economic Challenges

Sydney, Australia - BHP Group Ltd. (ASX: BHP) reported a 23% decline in first-half profit, dragged down by waning demand for iron ore from China's faltering economy.

The mining giant posted an underlying profit of $5.08 billion for the six months ended December 31, 2022, falling short of analysts' estimates of $5.39 billion. Iron ore remains BHP's primary revenue driver, but copper's contribution has surged to 44%.

To address the profit decline, BHP cut its interim dividend to 50 cents per share, down from 72 cents a year earlier. This move suggests a renewed focus on capital management as the company pursues growth.

Despite the lower profits, BHP CEO Mike Henry expressed optimism. He noted strong demand for BHP products despite global economic uncertainties and signs of recovery in China, India, and the US.

Iron ore prices during the reporting period declined by 5%, while copper fell by 9%. BHP's Pilbara iron ore mines in Western Australia were also impacted by Tropical Cyclone Zelia. The storm forced BHP to adjust its production guidance for the material, with output now expected to fall within the lower end of the previously projected range due to weather disruptions.

Analysts expect major miners like BHP to prioritize capital allocation this year, with a focus on expanding commodity portfolios that support the energy transition, particularly copper. Ross McEwan, BHP's incoming chairman, is expected to play a key role in managing ongoing capital expenditure pressures.

Under Ken MacKenzie's leadership, BHP prioritized investor returns, divesting its oil and gas portfolio and part of its coal business. Recently, the company pursued inorganic growth through the acquisition of OZ Minerals and a failed takeover attempt of Anglo American.

China's economic challenges continue to weigh on the iron ore market. Beijing's efforts to stabilize the property sector have yet to yield significant results, leaving China's economic recovery vulnerable.

However, BHP remains optimistic about copper and potash as growth areas, as China's demand for iron ore plateaus. The company plans to invest heavily in copper production, particularly in Chile, where it has partnered with Lundin Mining to develop the Filo del Sol mine.