Join our daily newsletter At The Bell to receive exclusive market insights
BHP Ltd (ASX:BHP), one of the ASX’s ‘Mag2’ (alongside Commonwealth) and the world’s biggest miner (depending on how you measure it), has dipped -2.3% in early Wednesday trades on news China has expanded an effective boycott on BHP iron ore products over what is believed to be a contract pricing dispute.
Listen to the HotCopper podcast for in-depth discussions and insights on all the biggest headlines from throughout the week. On Spotify, Apple, and more.
As I covered in last week’s HotCopper Wire podcast episode, Chinese steel mills were reportedly encouraged by the Chinese government to halt orders of one class of BHP iron ore product over disagreements about price. For context, iron ore futures are currently hovering around US$105/tn.
But now, that effective order on Chinese steel mills appears to have been expanded to all iron ore products BHP sells to China – as for its Aussie iron ore operations, by far the largest and most important trading partner the company’s got.
The economic implications, assuming this situation remains the quo for some time, aren’t fantastic. Especially not for Western Australia, which in turn really is an all-important engine room for the national economy.
Worst-case scenario, if there’s less FIFO money getting around, maybe we’ll see local (West Australian) house prices cool down the road. Or maybe we won’t.
All in all, it’s not the world’s best way to kick off Q3 for a traditional export-based resources economy. While we haven’t seen BHP shares slaughtered on Wednesday morning by any means, it’s not great for the company’s 1Y returns, which are currently negative, just south of -5% compared to last October.
What this situation also poses is a taste of what may be to come. Rio Tinto is building its West African Simandou iron ore project, which is widely seen as an existential threat to WA’s iron ore economy, which is perhaps best evidenced by the fact that Rio Tinto keeps insisting that it isn’t an existential threat to WA at all.
BHP last traded at $41.75/sh heading towards Wednesday lunchtime.
Join the discussion: See what HotCopper users are saying about BHP Group Ltd and be part of the conversations that move the markets.
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.
