Money
Post Market Wrap | BHP’s March 2022 operational performance impacted by COVID-19
This Post Market Wrap is presented by KOSEC – Kodari Securities
- Iron ore and coal production volumes and prices remain strong
- Copper and nickel production volumes impacted by COVID related labour shortages
- Potash projects under development in Canada remain on track
- Merger of BHP’s oil and gas interests with Woodside Petroleum set for completion on 1 June
- Skill shortages and overall labour market tightness expected to continue into 2023
- Long term outlook supported by rising living standards, global population growth and future infrastructure expenditure on decarbonisation solutions.
BHP is a world leader in producing and processing mineral commodities. It has 80,000 employees and contractors, based primarily in Australia and the Americas. BHP is the world’s lowest cost major producer of iron ore. The Company also produces copper, nickel and metallurgical coal at scale and has committed to a significant investment in potash, a natural ingredient for fertiliser.
March 2022 Operational Review
COVID induced skilled labour shortages and wet weather have hampered BHP’s production activity during the March quarter, according to production volume details released this morning. However, record high prices for metallurgical coal and continuing high prices for iron ore are supportive of a satisfactory June 2022 financial year profit result.
BHP confirmed its original 2022 production guidance for iron ore, metallurgical coal and energy coal. The Company is taking advantage of record high prices for higher quality energy coal by increasing the proportion of thermal coal sourced from its NSW Energy Coal mine sites.
Full year copper production guidance has been reduced to between 1570 and 1620 kt, from between 1590 and 1760 kt, and actual production is down 10 percent for the 9 months to March 2022, compared to the 9 months to March 2021. The reduced operational workforce, as a result of significant increases in COVID-19 cases, has resulted in lower production volumes from BHP’s Escondida mine in Chile. Similar operational workforce constraints in Western Australia have cut nickel production volume by 13 percent in the March quarter, compared to the March 2021 quarter volume. BHP has lowered nickel production volume guidance for the year by about 10 percent from original estimates.
BHP’s potash projects in Canada are tracking to plan with the initial production target dates of calendar year 2027 remaining firm.
The merger of BHP’s oil and gas interests with Woodside Petroleum is set for completion on 1 June, following Woodside shareholder approval on 19 May.
Looking Ahead
The BHP earnings outlook remains cautious.
BHP has previously flagged higher labour costs arising from COVID related skilled labour shortages and this cost imposition had been factored into market earnings estimates. However, BHP’s warning that 2022 guidance is subject to further potential negative impacts from COVID-19 during the 2022 financial year remains a lingering cause of concern.
The Company also warned that market volatility and inflation pressures have increased further because of the Russian war on Ukraine. Skill shortages and overall labour market tightness is anticipated to continue in the period ahead, in both Australia and Chile. Furthermore, BHP do not expect these conditions to improve until the 2023 financial year.
Although the BHP production outlook is facing short term headwinds, the long-term picture remains positive. Global population growth, future infrastructure expenditure on decarbonisation solutions and rising living standards are driving demand for clean energy, metals and fertilisers. BHP is leveraged to these global mega-trends, implying consistent earnings growth over the long term.
This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.
Money
US stocks face tests from Tesla, Netflix earnings
US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data
US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data
– Earnings reports from Tesla and Netflix might affect U.S. stock performance next week amid high inflation concerns.
– Increased market volatility arises from U.S.-China trade tensions and fewer S&P 500 stocks in an uptrend.
The S&P 500 entered its fourth year of growth amidst these fluctuations, having previously experienced a period of calm. Experts suggest market risks are intensifying as valuations reach peak levels.
Market Volatility
Concerns regarding U.S.-China trade relations escalated last week when the U.S. threatened to raise tariffs by November 1 over China’s rare-earth export policies. President Donald Trump is scheduled to meet with President Xi Jinping in two weeks to discuss these issues.
Despite these challenges, major stock indexes gained ground over the week, with the S&P 500 up 13.3% year-to-date. However, a noticeable decline in the number of S&P 500 stocks in an uptrend raises caution among investors about underlying market weaknesses.
The upcoming third-quarter earnings will be closely monitored, especially as the government shutdown halts economic data releases. Companies like Procter & Gamble, Coca-Cola, RTX, and IBM are due to report. The delayed U.S. consumer price index is also expected to provide crucial insights ahead of the Federal Reserve’s monetary policy meeting on October 28-29.
Money
Australia’s unemployment rate rises to 4.5 per cent
Australia’s unemployment rate rises to 4.5 per cent in September, prompting calls for potential Reserve Bank interest rate cut
Australia’s unemployment rate rises to 4.5 per cent in September, prompting calls for potential Reserve Bank interest rate cut
– Australia’s unemployment rate rose to 4.5% in September, the highest since November 2021.
– Economists note a cooling labour market, with fewer job ads and increased participation rate amid rising living costs.
Economists suggest that the Reserve Bank should consider another interest rate cut next month. BetaShares chief economist David Bassanese noted a slowdown in employment demand as the labour market struggles to accommodate job seekers.
The number of officially unemployed rose by 33,900 in September, while the employment count increased by 14,900. The labour force expanded by 48,800 people, resulting in a participation rate rise of 0.1 percentage points to 67 per cent, returning to July levels.
In trend terms, the unemployment rate remained steady at 4.3 per cent.
Labour Market
BDO chief economist Anders Magnusson stated that while the unemployment rate has increased, the labour market is cooling, not collapsing.
He pointed out that the 14,900 jobs added in September were slightly below the average for the past year.
A growing participation rate indicates that rising living costs are prompting more individuals to seek employment. Magnusson said the release confirms a gradual cooling of the labour market that keeps the Reserve Bank on track without necessitating immediate action.
He added that hiring activity is slowing, signalled by a 3.3 per cent drop in job advertisements in September, the largest monthly decrease since February 2024.
Despite this, he does not foresee a rate cut in November.
Money
Stocks rebound after Trump eases China trade tensions
Stocks rebound 600 points as Trump eases China trade tensions, signalling optimism in markets following Friday’s sell-off
Stocks rebound 600 points as Trump eases China trade tensions, signalling optimism in markets following Friday’s sell-off
– Stocks rose on Monday after Trump expressed optimism about trade relations with China.
– The Dow Jones gained 621 points, with significant increases in tech stocks and broad market recovery.
Oracle’s stock surged over 5%, with AMD and Nvidia seeing 1% and 3% increases, respectively. Broadcom’s stock jumped 10% following the announcement of a partnership with OpenAI.
Trump’s comments hinted that he might not impose a significant increase in tariffs on China, which had previously caused market turmoil. Vice President JD Vance similarly indicated a willingness to negotiate with China, while also asserting that the U.S. holds advantages in potential trade discussions.
Broader Recovery
Monday’s trading saw a positive shift with four out of five S&P 500 stocks rising, indicating widespread recovery. Small-cap stocks also made gains, with the Russell 2000 rising over 2.5%.
Market concerns persist, however, with a government shutdown continuing and a major payroll deadline approaching on October 15. Earnings reports from major financial institutions, including Citigroup and JPMorgan Chase, are expected this week, potentially impacting market sentiment.
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