Goodbye BHP dividend:
BHP shareholders will take a 14 per cent dividend cut in a fresh sign the acquisitive miner is reserving a greater proportion of earnings for growth bets.
Investors will receive a US74¢ ($1.09) final dividend after BHP posted a slightly better than expected $US13.7 billion underlying profit on Tuesday.
When added to February’s interim dividend, BHP shareholders will receive $US1.46 a share for 2023-24, lower than the $US1.70 paid to investors last year.
The dividend cut came despite a 3 per cent rise in annual revenue and a 2 per cent rise in underlying profit. But a slew of impairments, including against BHP’s Australian nickel mines, meant net profit was 39 per cent lower at $US7.89 billion.
Every few years, I get the same look of incredulous look of anger from investors when I forecast the major miner’s dividend going to zero.
Back in 2015, it was card-carrying AFR man Trevor Sykes that went under the bus.
Rinse and repeat today as not even BHP can hide the dire outlook:
Iron ore consumption in China was strong in CY2023.
In contrast, steel output continued to contract in developed regions albeit at a slower rate than previous years.
Over the next two years we expect a small improvement in global steel production with growth led by India and Southeast Asia, with some additional growth from a recovery in developed regions.
After a strong CY2023, we expect Chinese blast furnace run rates to ease in CY2024, under pressure from subdued steel margins and the potential for policy driven production controls.
During H2 FY2024, iron ore prices first declined and then traded in the range of around US$100 to US$120/t.
A widening surplus has emerged with Chinese port inventories rising to elevated levels.
For the balance of CY2024 and into CY2025, we expect supply from low-cost major iron ore producers to grow while iron ore consumption is experiencing a modest decline. Our estimate of real-time cost support continues to sit in the US$80 – US$100/t range on a 62% Fe CFR basis.
Should surpluses persist as we forecast, we would expect some high-cost suppliers may be driven out of the market over time.
How quickly and effectively the Chinese policies targeted at the property sector stabilise it, and the government’s approach to regulating steel production, will both be large swing factors for the remainder of CY2024 and into CY2025.
In the medium term, China’s demand for iron ore is expected to be lower than it is today as it moves beyond the crude steel production plateau and as the ratio of scrap-based steelmaking rises.
We maintain our view that China’s steel production has plateaued above 1.0 and this is likely to continue across the mid-2020s.
However, Chinese pig iron production is expected to decline during this period with more recycled scrap used in steelmaking.
We expect demand for our products in other developing regions in Asia to offset this to a degree.
BHP’s dividend will be progressively cut over the next two years as iron ore overshoots to the downside.
