As
-Petroleum now at the lower end of guidance range
-Copper prospects excite several brokers
-Earnings upgrade momentum driven by buoyant iron ore
A strong outlook for iron ore and metallurgical coal is providing momentum for
Copper production in the December quarter was the main positive surprise compared with broker forecasts, having benefited from record concentrator throughput across the first half that more than offset the impact related to stoppages in
Copper and energy (thermal) coal production increased 6% and 8% respectively quarter on quarter, while metallurgical (coking) coal rose 17% after major maintenance was completed in the prior quarter.
Nickel production was down -24% but that was because of maintenance at the
Production guidance is unchanged, although petroleum is expected to come in the lower end of the prior forecast range of 110-116 mmboe. This stems from unfavourable weather conditions in the
There is also some risk to thermal coal guidance in the instance of any bushfire events near the NSW production hub but at this time guidance is unchanged. Smoke and dust have reduced air quality and this did affect volumes in the second quarter.
Cost guidance was unchanged for FY20. Escondida (copper) is running below cost guidance because of higher by-product credits, which
Meanwhile, funds of
BHP Group Versus Rio Tinto
Credit Suisse continues to believe the company's portfolio provides two benefits compared with rival Rio Tinto. These include greater breadth of commodity exposure that helps it to withstand any swings in any particular commodity, and a broader range of opportunities in petroleum and potash.
Credit Suisse now has a more constructive view about
With strong Chinese rhetoric around infrastructure in particular, the broker assumes a 1.6% increase in Chinese steel demand in 2020, although by the second half steel production is likely to slow. This will coincide with seasonally strong supply of iron ore and allow depleted inventory to be somewhat rebuilt.
A similar pattern is expected in 2021. As a result, Credit Suisse iron ore price forecasts are raised to
Macquarie calculates the spot price scenario for iron ore is driving around 35% and 50% upside to its FY21 and FY22 earnings forecasts, respectively. That said, the broker's production forecasts for Pilbara iron ore are now below guidance.
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