File image
JOHANNESBURG - BHP GROUP, which is listed on the JSE, warned cooling growth in China and global threats to free trade present key risks to raw materials prices over the next year, even as the company boosted its final dividend payout to a record on higher annual earnings.

Sounding a cautious note for commodity markets, the world’s biggest miner forecast that any further deterioration in trading ties with the US could cut growth in China’s gross domestic product to below 6percent and deliver a blow to demand for raw materials.

Trade tensions are “actually putting a bit of a dampener on world economic growth and certainly the prospects for world economic growth,” chief executive Andrew Mackenzie said on a conference call. “Ultimately, if not yet, it will impact the demand for our products.”

Beyond the US and China dispute, there are also wider challenges to free trade that threaten to curb demand for commodities, according to Mackenzie.

“The more that governments think they can intervene in industry, threaten the independence of their banks, then the bigger risks that they are placing on broader global economic growth.”

BHP’s call for vigilance may signal returns to investors from the mining sector are hitting a peak. While the company joined rivals including Rio Tinto Group and Anglo American plc in using the windfall from iron ore’s recent price gains to boost returns, its annual earnings and dividends missed estimates.

Oil and copper remain highly susceptible to swings in global policy uncertainty, according to the company, while prices of iron ore - the steel-making material that accounts for about half of the company’s earnings - will be volatile as supply returns to the market following outages earlier this year and demand from China’s mills wanes. “We are ready for whatever the world might throw at us, and we can profit from a downturn,” Mackenzie said. The producer’s policy to pay out a minimum of half of underlying earnings is among tools that can help BHP “sail through what might be choppier waters in the future,” he said.

BHP’s shares were little changed in Sydney trading yesterday as Australia’s benchmark index rose 1.2 percent.

The warning from BHP on China’s outlook comes after the nation’s economy slowed in the April-June period to the weakest pace of growth since quarterly data began in 1992. Its growth will slow modestly to between 6 and 6.25percent this year and in 2020 and any escalation of the trade spat could push that rate as low as 5.75percent, according to Huw McKay, BHP’s vice president for market analysis and economics.

Earlier this month, Jean-Sebastien Jacques, chief executive of Rio, the No 2 miner, said China’s economy was slowing in line with the sector’s expectations and there was a chance demand could be supported by city rebuilding programmes. Jacques and BHP’s Mackenzie attended a meeting with Premier Li Keqiang in June, along with other global chief executives.

BHP’s underlying annual profit rose 2 percent to $9.1billion (R140bn). 

BLOOMBERG