People walk through the foyer of the BHP Billiton headquarters in Melbourne, Australia. Picture: BLOOMBERGIt may be a bit of an oversimplification, but in the current situation of the global coronavirus pandemic, the world of commodities is effectively split between China and the rest.
BHP reported underlying profit attributable from continuing operations for the year ended June 30 of $9.06bn — below estimates of $9.42bn, according to Refinitiv IBES data. China buys more than two-thirds of the global seaborne trade in iron ore, making it the major commodity most exposed to the Chinese economy.
Spot 62% iron ore for delivery to north China, as assessed by commodity price reporting agency Argus, rose to a six-and-a-half-year high of $128.20 a tonne on Wednesday. It is now up 62% from its low so far this year of $79.60 on March 23, and 41% from the end of 2019. The Anglo-Australian miner reported underlying half-year earnings of $4.75bn, beating the analysts’ consensus forecast of $4.36bn.“We believe that China has enjoyed a very steep V-shaped recovery. Today we see it as that the demand for steel and iron ore in China is very, very strong and order books are full,” Jacques said.The risk for Rio is that it becomes a one-trick pony, as iron ore accounted for 96% of its underlying earnings in the first half.
However, while it’s clear that Rio is heavily dependent on iron ore, this will likely work in its favour for as long as China’s economy is surging, while the rest of the world is still battling to control the pandemic.
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World of commodities a China/rest of world split, clearly shown by BHP and Rio’s resultsThe risk for Rio Tinto is that it becomes a one-trick pony, as iron ore accounted for 96% of its underlying earnings in the first half
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