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
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
