China steel woes will recast miners' M&A desires
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to add hyperlink.
By Antony Currie
MELBOURNE, Aug 27 (Reuters Breakingviews) -Mike Henry sure likes to downplay his acquisitive tendencies. While unveiling results for the year to the end of June on Tuesday, the BHP BHP.AX boss declared that his $47 billion tilt for Anglo American AAL.L earlier this year "wasn't Plan A for us". Instead, organic growth is. That may just be sour grapes after his overtures to his rival failed. But the growing steel crisis in China makes such deals ever-more appealing.
The People's Republic accounts for around half of the two billion tons of the metal produced globally each year. And it buys most of the iron ore, a key ingredient, dug up in Australia by BHP, Rio Tinto RIO.L, RIO.AX and Fortescue FMG.AX.
Now overcapacity, wrought in part by the property market slump in the world's second-largest economy, is pushing its steel industry into what Hu Wangming, chair of top producer China Baowu Steel Group, calls a "harsh winter". At least 75% of the country's steel mills are not turning a profit, per Macquarie; a survey by consultancy Mysteel puts than number at 95%. As a result, the iron ore price has fallen some 30% this year to just below $100 a ton.
That's painful for miners Down Under. Rio relies on iron ore for 73% of its EBITDA, while Fortescue is almost entirely dependent on it. At BHP, the figure is lower at 65%, but that's thanks in part to its purchase last year of local copper miner Oz Minerals for $6.4 billion - a quarry Henry dubbed "nice to have, not a must-have" after his approach was initially rebuffed.
Had his proposal to buy Anglo succeeded, iron ore's share of BHP's EBITDA would have dropped below 60%, Breakingviews calculates using both companies' most recent annual results. That would have provided a quick jolt to Henry's longer-term plans to diversify BHP's income by developing its existing copper and potash assets; he's also snapping up undeveloped and early-stage projects, spending $2.1 billion on Latin American copper mines last month.
Aussie miners have a decent buffer against China's woes: all-in iron ore costs are $40 a ton at BHP, rising to $60 at Fortescue, per UBS. And Henry is showing some balance sheet caution, cutting the annual dividend,increasing capital expenditure, and reducing net debt.
Trouble is, shares in BHP - and Rio - are down by almost a fifth this year, while potential targets like Freeport-McMoRan FCX.N, Anglo and Teck Resources TECKb.TO are up by as much as the same amount. That makes diversification via M&A all the more expensive.
Follow @AntonyMCurrie on X
CONTEXT NEWS
BHP on Aug. 27 reported attributable profit of $7.9 billion for its 2024 financial year to the end of June, 39% lower than the previous 12 months. Excluding $5.8 billion of impairments and other charges announced in February, attributable profit would have been $13.7 billion.
The Australian company is paying total dividends for the financial year of $7.4 billion, 15% lower than in 2023. Capital expenditure is expected to rise around $500 million to $10 billion in the 12 months to next June.
China's Ministry of Industry and Information Technology on Aug. 23 said it was suspending its system for approving new steel plants and would develop a new one.
The country's steel industry is suffering from excess supply. Hu Wangming, chair of China Baowu Steel Group, the world's largest producer of the metal, recently told staff the industry is facing a "harsh winter" that will be "longer, colder and more difficult to endure than we expected", Bloomberg reported on Aug. 14.
Iron ore futures on the Singapore Stock Exchange closed on Aug. 26 at $98.60 a ton, down some 30% since the start of the year.
Graphic: China's steel crisis has sent iron ore price plunging https://reut.rs/3WZ92Qp
Graphic: Shares in iron ore miners lag potential targets https://reut.rs/3ACAU5b
Editing by Una Galani and Ujjaini Dutta
Gerelateerde activa
Laatste nieuws
Disclaimer: De entiteiten van de XM Group bieden diensten en toegang tot ons online handelsplatform op basis van uitsluitend-uitvoering, waardoor een persoon de beschikbare content op of via de website kan bekijken en/of gebruiken, zonder dat dit is bedoeld voor wijziging of uitbreiding. Dergelijk(e) toegang en gebruik vallen onder: (i) de algemene voorwaarden; (ii) risicowaarschuwingen; en de (iii) volledige disclaimer. Dergelijke content wordt daarom alleen aangeboden als algemene informatie. Wees u er daarnaast vooral van bewust dat de inhoud op ons online handelsplatform geen verzoek of aanbieding omvat om transacties op de financiële markten uit te voeren. Het beleggen op welke financiële markt dan ook vormt een aanzienlijk risico voor uw vermogen.
Alle materialen die op ons online handelsplatform worden gepubliceerd zijn bedoeld voor educatieve/informatieve doeleinden en omvatten geen – en moeten niet worden beschouwd als het bevatten van – financieel, vermogensbelastings- of handelsadvies en aanbevelingen, of een overzicht van onze handelsprijzen, of een aanbod of aanvraag van een transactie in financiële instrumenten of ongevraagde financiële promoties voor u.
Alle content van derden, alsmede content die is voorbereid door XM, zoals opinies, nieuws, onderzoeken, analyses, prijzen en andere informatie of koppelingen naar externe websites op deze website worden aangeboden op een 'zoals-ze-zijn'-basis, als algemene marktcommentaren, en vormen geen beleggingsadvies. Voor zover dat content wordt beschouwd als beleggingsonderzoek, moet u zich ervan bewust zijn en accepteren dat de content niet bedoeld was en niet is voorbereid in overeenstemming met de wettelijke vereisten die zijn opgesteld om de onafhankelijkheid van beleggingsonderzoek te bevorderen en als zodanig onder de geldende wetgeving en richtlijnen moet worden beschouwd als marketingcommunicatie. Zorg ervoor dat u onze Mededeling over niet-onafhankelijk beleggingsonderzoek en risicowaarschuwing in verband met de voorgaande informatie doorneemt en begrijpt; die kunt u hier lezen.
