BHPs economic and commodity outlook
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BHPs economic and commodity outlook

Mar 13, 2024

22 August 2023

Vice President, Market Analysis & Economics

BHP's economic and commodity outlook - FY2023 (PDF)

Please refer to the Important Notice at the end of this article1

Six months ago, at the time of our half year results for the 2023 financial year, we observed that while the range of uncertainty around the growth and general inflation outlook was narrower than it had been in some time, commodity price dynamics were expected to be highly complex once again. We argued that price volatility would be generated within the year by an arm wrestle between three major forces that were summarised by the following “R”–words: reality (of slower growth in the developed world), relief (that the inflationary wave appeared to have crested); and re–opening (the China dynamic).

An ebb and flow between these forces was expected to continue throughout the half year. Our basic framing against this multi–faceted backdrop was that we expected that price formation would, on average, improve across calendar 2023 versus the second half of calendar 2022, when pessimism on Chinese growth prospects was at its height, the US Fed was at its most hawkish and the energy price shock was at its peak. But at the same time, we gauged that the constellation of prices observed at the time of our half–year results for the 2023 financial year over–stated how tight physical commodity markets were likely to be over the full year, especially in non–ferrous metals where roughly half of global demand emanated from outside China. We also argued that should there be phases within the year where prices do trade to the downside, these dips were more likely to be shallow rather than deep, noting that industry–wide cost inflation has raised real–time price support well above pre–pandemic levels in many of the commodities in which we operate, and value–chain inventories in general were low across multiple industries.

That framework has held up well. Reality has never been far away, with the materials–intensive segments of the developed world’s economies clearly slowing down, and financial fragility and policy uncertainty periodically rearing their heads. The global headline inflationary pulse has also clearly peaked, and while that is a relief in and of itself, interest rate relief in the absolute sense is still likely some way off. China started calendar 2023 well with a strong re–opening in the March quarter, but the June quarter was underwhelming, with weakness in housing weighing on both local government finances and private sector confidence levels, thereby offsetting the generally solid outcomes seen elsewhere in the system. And commodity prices were certainly volatile, with the trend of divergence between commodity clusters continuing, but dips have been relatively shallow, reflecting elevated cost support, a moderate operational performance in general, and the aforementioned low stocks.

On the specific commodity clusters, energy, food, and fertiliser markets spent most of the last six months unwinding the stunning peaks that emerged in calendar 2022. The steel–making value chain saw gains in the March quarter, but these have since dissipated, with prices experiencing two–way oscillation within a relatively narrow range in the June quarter and the month of July. Non–ferrous metals have been influenced by swings in risk appetite in the West (bank failures in the US and Europe, the debt ceiling standoff, the inflation–interest rate nexus), industry specific factors such as low exchange stocks, and the inconstant fundamental demand and policy signals coming out of China.

With the 2023 calendar year half over, we have updated our expectations for short-term supply-demand balances (where a surplus means rising inventories and a deficit means inventories will run down). We now see a small surplus or a balanced copper market (better Chinese end–use demand and operational shortfalls), which is a shade better than expected at the outset of the year. We foresee a somewhat larger surplus in total nickel units (lower than expected demand and very rapid growth from Sino–Indonesian facilities). We anticipate a broadly balanced iron ore market on average across the 2023 calendar year, although there are multiple uncertainties feeding into that assessment, most notably the breadth, severity and timing of mandatory steel cuts in China, a point on which it is disingenuous to hold a high conviction position. Should we see an abrupt slowdown in production, port stocks in China would certainty increase through the period when production is curtailed. The metallurgical coal market is obviously not as tight as it was in calendar 2022, when a series of pricing records were set, and has evolved broadly as expected in the aggregate under conditions of improving supply.

Looking beyond the immediate picture to the medium term, we continue to see the need for additional supply, both new and replacement, to be induced across many of the sectors in which we operate.

After a multi–year period of adjustment in which demand rebalances and supply recalibrates to the unique circumstances created by COVID–19, the Ukraine conflict, and the global inflationary shock, we anticipate that geologically higher–cost production will be required to enter the supply stack in our preferred growth commodities as the decade proceeds.

The projected secular steepening of some industry cost curves that we monitor, which may be amplified as resource nationalism, supply chain diversification and localisation, carbon pricing and other forms of so-called “greenflation” become more influential themes in both demand and supply centres, can reasonably be expected to reward disciplined and more sustainable owner–operators with higher quality assets featuring embedded, capital–efficient optionality.

We confidently state that the basic elements of our positive long–term view remain in place.

Population growth, urbanisation, the infrastructure of decarbonisation and rising living standards are expected to drive demand for steel, non–ferrous metals, and fertilisers for decades to come.

Over the course of the 2020s we expect: global population2 to expand by 0.8 billion to 8.5 billion, urban population to also expand by 0.8 billion to 5.2 billion, nominal world GDP to expand by $83 trillion to $ 171 trillion and the capital spending component of GDP to expand by $16 trillion to $39 trillion 3 Each of these fundamental indicators of resource demand are expected to increase by more in absolute terms than they did across the 2010s.

By 2050, we project that: global population will be approaching 10 billion; urban population will be approaching 7 billion; the nominal world economy will have expanded to around $400 trillion, with one–fifth of that – i.e., around $80 trillion – being capex.

In line with our purpose, we firmly believe that our industry needs to grow in order to best support efforts to build a better, Paris–aligned world.4 As indicated by the scenario analysis in our Climate Change Report 2020 (available at, if the world takes the actions required to limit global warming to 1.5 degrees, we expect it to be advantageous for our portfolio as a whole.5

And it is not just us.

What is common across the 100 or so Paris–aligned pathways we have studied is that they simply cannot occur without an enormous uplift in the supply of critical minerals such as nickel and copper.

Our research also indicates that crude steel demand is likely to be a net beneficiary of deep decarbonisation, albeit not to the same degree as nickel and copper. And some of the more extreme scenarios we have studied, such as the International Energy Agency’s technologically optimistic Net Zero Emissions scenario6, would be even more favourable for our future-facing non–ferrous metals than what is implied by our own work to date: albeit with different assumptions and potential impacts elsewhere in the commodity landscape.

Against that backdrop, we are confident we have the right assets in the right commodities in the right jurisdictions, with attractive optionality, with demand diversified by end–use sector and geography, allied to the right social value proposition.

Even so, we remain alert to opportunities to expand our suite of options in attractive commodities that will perform well in the world we face today, and will remain resilient to, or prosper in, the world we expect to face tomorrow.


China’s economy was buffeted by multiple headwinds in calendar 2022. From a GDP perspective, China’s growth slowed to just +3.0% in that year, 0.4 percentage points lower than the world growth rate. That was the first time in more than 40 years that China’s economy had expanded at a slower rate than the global weighted–average. Such weak economic growth relative to China’s potential rate saw producer price deflation setting in, with consumer prices also very subdued. China’s outlier status regarding price pressures, in a world enveloped by inflationary risk, provided Chinese policymakers considerable freedom to stimulate the economy without worrying about managing a parallel cost–of–living crisis.

With the U–turn on zero–COVID executed in December–2022, international relations stabilised and policy support for housing in place, expectations for what China could achieve under its re–opening were high.

The annual GDP target of “around 5%” announced at the Two Sessions in March was seen by many as unduly conservative – and was accordingly interpreted as a low hurdle that the new leadership team would be able to clear at a canter.

The early portents were good. Credit supply opened calendar 2023 very strongly, new house price gains broadened to almost all the country’s top 70 cities, and mobility and discretionary consumption indicators showed that urban residents were returning to a lifestyle more conducive to spending on services. Steel production for March was the highest on record for that month, at 1.122 Btpa. The Politburo’s April communique on the state of the economy confidently described the March quarter as “better than expected”, and the range of private sector forecasts were revised upwards. According to the Bloomberg Consensus, mean real GDP expectations for calendar 2023 bottomed in the final week of calendar 2022 at +4.8%, and they peaked in mid–May at +5.7%. The low end of the range bottomed at 2.2% in October 2022: but it had doubled to +4.4% by May. And then … the early year momentum slowly bled out as the June quarter progressed.

Initially, our sense was that the June quarter was a soft spot naturally attributable to the pull forward of activity associated with the sugar rush of the first few months of re–opening, and the fact that officials and the financial system consciously took their feet off the accelerator after the Politburo’s confident April assessment. We also noted that the April communique was tinged with some hawkish commentary on local government finances (“strictly control the growth of implicit debt”) and a repetition of the well–worn phrase on “housing is for living, not for speculating”, which provided an undertone of caution that officials should not lose sight of the structural impact of their decision making. However, after the monthly data round for May, we adjudged that this was more than just a minor soft spot – it was reflective of an overhang of weak confidence that had been shrouded by the re–opening euphoria – and therefore a renewed policy push was going to be required. And the focal points for the reinvigorated stimulus effort would need to reinstall confidence in private developers via the more effective implementation of the “16 measures”7 (of which more below) and put local government finances on a firmer footing (where something new on the structural front is likely required, in addition to the obvious cyclical desire to get land sales moving again). The synergistic aspects of stabilising housing and reducing risks in local government finance are impossible to refute.

As the need for additional policy support became increasingly apparent as the June quarter advanced, expectations centred on the late–July Politburo meeting to deliver a shift in tone towards more decisive support for growth. So: what did the Politburo say?

The Politburo communique confirmed that the leadership understand the need for new counter–cyclical policy measures, as well as the need for more effective implementation of the measures already put in place.

There were five major themes:

Openly acknowledging there is a problem: in stark contrast to the confidence of the April report where growth was described as “better–than–expected” with “supply and demand pressures eased”, in July, “the economy is currently facing new difficulties and challenges, which mainly arise from insufficient domestic demand, difficulties in the operation of some enterprises, risks and hidden dangers in key areas, as well as a grim and complex external environment.” The need to stabilise employment and mobilise monetary policy were highlighted. Firmer language on the “grim” external sector is also noteworthy.

Real estate: The stock phrase of recent years that “housing is for living, not for speculating” was removed, with a vow to “optimise policies” in the face of “the significant shift in housing supply & demand balance”. “Optimise policies” indicates a refocus on implementing existing frameworks, most notably the “16 Measures” package that was announced in late CY22 has not been as successful as hoped, especially where it comes to the funding of private developers.

Local government (LG): In April, the Politburo was borderline hawkish on LG finances. In July, we were promised a “set of measures to lower the risks of LG debt”. This is a dramatic, but much needed about–face. It is unclear exactly what the authorities will come up with here, but anything that mobilises the Central balance sheet at scale would be deeply beneficial. Kickstarting the weak land sales market (about 2½% of GDP in revenue for LGs pre-pandemic, this is now down to about 1½%) – which is directly related to the funding issues of private developers – would be synergistic. The announcement on August 11 that provincial governments will be allocated up to 1 trillion yuan in refinancing bonds to bring the debt of LG financing vehicles onto the formal balance sheet left financial markets unimpressed. That is understandable with around 40 trillion yuan (32% of GDP) of LG debt sitting on-balance sheet, and an additional 66 trillion yuan (53% of GDP) in financing vehicles (LGFVs).8

Government and the private sector: The Politburo extended an olive branch to China’s Big Tech platform companies and committed to greater dialogue with the business sector.

Stimulating consumption: The aim now is to “proactively expand domestic demand … To lift consumptions for automobile, electronics, household durables and tourism.” In April, only services and tourism were called out for assistance. The NDRC has already announced some policies to assist these areas in the weeks leading up to the session and has also followed up with additional guidance to spark housing.

The key judgment call now is to gauge how effectively these various policies will transmit.

IF they transmit based on pre–pandemic lead–lag relationships, the economy should stabilise soon and then firm progressively in the remaining months of the 2023 calendar year and open CY24 with solid momentum. That would be similar to the view we held six months ago, but obviously delayed.

BUT IF the transmission mechanism remains impaired, perhaps due to an overhang of weak confidence, the recovery would inevitably take longer, and near–term growth outcomes would disappoint, as they did in the June quarter. That would be at odds with our views from six months ago and would almost certainly be negative for commodity prices.

Our working base case is somewhere in the middle of these two plausible hypotheticals. We revised our GDP, steel, and copper forecasts after the release of May monthly data based on what we had seen in the year to date, and a view of the likely implications of the July Politburo meeting. Our updated GDP forecast is +5–5½% for CY23 versus +5¾–6¼% at the time of our half year results for the 2023 financial year. Our CY23 steel forecast range has come down and copper expectations have gone up: noting that the segments of the economy that are doing well despite the real estate drag are (in the main) copper intensive activities. Please go to the steel and copper chapters for more details.

The reality is that the policy simply did not transmit effectively where it was most needed: and the measure there is not a data point. It is the obvious lack of trust in private developers that has persisted in buyer and financier behaviour.

Some final observations on housing supply in a level sense, as opposed to rates of change. The estimated unsold universal housing stock (the broadest measure) has fallen below 2.3 billion square metres, to almost a decade–low10. By way of comparison, the all–time high for this measure was north of 2.9 billion square metres during the associated heavy industrial recession of 2014–16, and the low point after the multi–year resolution of that overhang (when housing de–stocking was a macroeconomic priority rolled under the supply side reform banner) was a little above 2.4 billion square metres. The urban population has increased from 767 million in 2014 to 921 million in 2022, and the average household size has declined from 3.1 persons in 2010 to 2.62 persons in 2020.11 The sustained period of weak starts over the last two–and–a–half years will ensure that aggregate supply will continue to tighten relative to underlying demand for some time yet. A genuine shortage of housing is likely to emerge in Tier 1 and Tier 2 cities in coming years. It is a question of when, not if. That may help explain why housing prices have not fallen more heavily despite the challenges the industry has endured. That should also provide some confidence that starts can bottom out relatively soon.

There is no more important consideration for the sentiment level of Chinese consumers than real estate prices, with more than 90% home ownership and around 70% of wealth held in this asset class.12

Moving on to non–housing end–use sectors now, and fixed investment in infrastructure was a bright spot in the first half of calendar 2023, as expected, with +10.1% YoY growth. While the overall growth in this broad segment was not a surprise, the composition of infrastructure investment did rotate over the last six months.

Water conservancy and related areas (e.g. sewerage13, residential water supply, irrigation, flood prevention, environment river restoration) slowed to +3% YoY in calendar 2023 to date, having underpinned the overall pick–up a year ago, with +10.3% growth in calendar 2022. This segment, which accounts for roughly two–fifths of total infrastructure spending, is heavily reliant on local government financing as well as cross-departmental coordination. With local government bond issuance lagging year–ago levels so far in calendar 2023, the slowdown in this segment is an expected, but unwelcome, development. Power infrastructure though has accelerated notably, with robust +27% YoY growth over the last six months. This was led by renewables capacity additions, as discussed in more depth in the copper chapter. Transport had lagged the other two segments in calendar 2022, but an acceleration to +11% YoY over the first half of 2023 has helped offset the slowdown in water conservancy. The major categories of road (+3.1%) and rail (+20.5%) were mixed, while a +29.7% jump in residual transport categories (e.g., sea and river ports, airports) was an impressive follow–up to a +32.5% outcome in calendar 2022.

Balancing the above slowdown in traditional goods export sectors, secular strength in workhorse decarbonisation technologies continues to be evident.

Moving to the longer–term, our view remains that China’s economic growth rate will moderate as the working age population falls (noting new estimates from the UN and China’s Statistician indicate that the total population has already peaked) and the capital stock matures.

We estimate that China’s incremental volume contribution to the world economy in the year 2050 will be roughly the same as what it averaged in the 2010s, despite the sub–2% growth rate that we anticipate.

Finally, we note that while long–term forecasts on the horizons we are considering here are not abundant, a small number of credible scholars and organisations have attempted to predict China’s absolute and relative GDP per capita level at mid–century, or at the nation’s carbon neutrality target year of 2060.

These projections range from 46% to 77% of US living standards, with a mean of 58%.18 Our planning range of 56% to 65% fits neatly without these parameters. That gives us confidence that our long–term planning range is built on robust foundations.

In the first half of calendar 2023, world crude steel production slipped a further –1% YoY, with China and India serving as a collective “source of stability” with +1% YoY (1080 Mtpa run–rate) and +7% (137 Mtpa run–rate) growth respectively, while the rest of the world contracted –5%. The most pronounced weakness was in Europe (–12% YoY), while South Korea was relatively resilient (–0.5% YoY), with the FSU, Japan and North America registering outcomes roughly mid–way between those book–ends. Pig iron though was able to lift mildly at the global level (+1% YoY), led once again by China’s +3% and India’s +7%.

For China, our updated crude steel estimate for calendar 2023 and our preliminary take on calendar 2024 indicate that the current four–year streak of outcomes in the 1.0 to 1.1 Bt plateau range running from 2019 through 2022 are likely to extend to five and then six.

The key caveat on the intra-year outlook for Chinese steel, as it has been for some years now coming into our full–year results season, is the looming spectre of mandated production cuts.

Non–environmental production cuts 20 (or their credible threat), typically backloaded to the second half of a calendar year, have become a major influence on industry dynamics. In the weeks leading up to the publication of our full–year financial results, some regions and cities were rumoured to have issued verbal guidelines to local mills, one smaller province has officially announced a cap, and rumours of a nationwide edict are also swirling. Market chatter is centring upon a general requirement to keep production at prior year levels. We are monitoring this closely, given the obvious impacts on the overall value chain if mills had to pull back abruptly late in the year after their sprint in the first half, as they did in calendar 2021. And it would also appear that some mills are choosing to run flat–out in anticipation that they may not be able to operate in unconstrained fashion later in the year.

At this stage though, the breadth, timing and severity of any prospective cuts are uncertain.

Note that Chinese steel production reached a robust 1080 Mtpa in the first half of calendar 2023 (the all–time high for a full year is 1065 Mtpa in 2020), with the half closing with a 1109 Mtpa pace in June. It is obvious from that starting point that we were already assuming a lower run–rate in the second half to get back to around +2% YoY growth. Pig iron surpassed a 900 Mtpa run–rate in the first half, and is on track for the second or third highest output in history, behind 2020’s 908 Mt. Our assumptions include a materially lower path for direct exports in the remainder of the year: exports have been very high around 85 Mtpa in half one. To hit +2% YoY (our crude steel forecast based on end–use needs with middle of the road policy intervention), the second half run–rate for calendar 2023 would need to be about 996 Mtpa. To be flat versus calendar 2022, which was 1018 Mt, the run–rate would have to fall to 956 Mtpa in half two.

We would categorise the latter scenario as a severe impost on the sector if it were to eventuate, noting blast furnace (BF) utilisation would need to be about 20 percentage points lower than at the intra–year peak to meet the objective. China’s BF utilisation rate averaged a robust 88% in the first half of calendar 2023, versus around 84% across calendar 2022 and in the previous corresponding period. The peak so far this year was around 92%.

We estimate that net exports of steel–contained finished goods account for slightly more than 10% of Chinese apparent steel demand, on average. That is a lower degree of external exposure than, say, Japan or Germany, where the number is about one–fifth. An additional 4-8% of Chinese production has been exported directly in the last three years, with the top of that range being in play in calendar 2023.23 The direct trade surplus in steel has fluctuated widely since the pandemic began, both seasonally and year–to–year. In calendar 2022, net exports were +54 Mt, up from a +41 Mt outcome in the prior year. There was an unexpected jump in the first half of calendar 2023, with sizeable surpluses in excess of +80 Mtpa recorded in multiple months, with a peak of 98 Mtpa in May. That level of exports is a source of unease in the global industry. Add that to the desire of the Chinese authorities to keep production at a reasonable level, and a substantially lower net export run–rate in the second half of calendar 2023 seems far more likely than not.

Turning to the long–term, we firmly believe that, by mid–century, China will increase its accumulated stock of steel in use, which is approaching 9 tonnes per capita, by between 1½ and 1¾ times on its way to an urbanisation rate of around 80% and living standards around three-fifths of those in the United States.

China’s current stock is well below the current US level of around 12 tonnes per capita. Germany, South Korea, and Japan, which all share important points of commonality with China in terms of development strategy, industry structure, economic geography, and demography, have even higher stocks than the US.

The exact trajectory of annual production run–rates that will achieve this near doubling of the stock is uncertain. Our base case remains that Chinese steel production is in a plateau phase, with the literal peak likely to be the cyclical high achieved in this period (with 1.065 Bt in 2020 being the “clubhouse leader” in golfing terms). Identifying the literal peak year and level precisely is merely a tactical question from today’s vantage point. Strategically, the plateau can be usefully thought of as a range from 1.0 to 1.1 Btpa, with cyclical and policy driven year–to–year fluctuations contained within those general boundaries.

Together, China and India are expected to provide around 60% of the incremental tonnes in the 2023 calendar year. That broad expectation was one of the reasons why we stylised these populous giants as a “source of stability” for commodity demand twelve months ago.

Iron ore

The consensus in 2018 was that demand would be modest, low–cost seaborne supply from the major basins would increase, higher–cost supply would be progressively squeezed out, the cost curve would flatten, and prices would soften. In reality, the opposite has happened on every score.

Metallurgical coal

The metallurgical coal industry has experienced both hunger and plenty in the pandemic era, with periods of loss–making for some producers in calendar 2020 and the first half of 2021 having given way to fly–up and then scarcity pricing in calendar 2022.

Beyond the abrupt volte–faces on the demand side associated with lockdown and re–opening economics around the globe, the industry has also dealt with the presumptive clearing market [China] not accepting products from the major exporter [Australia] for more than a year, a supply side shock in lower–end coals in the wake of the Ukraine conflict, massive arbitrage opportunities between the FOB and China CFR sectors of the trade, three consecutive La Nina phases that hampered production on Australia’s east coast, and a generalised energy system crisis that pulled already scarce metallurgical coals into power generation. After all of that, the last six months felt relatively uneventful, even with the key uncertainty of China’s trade re–opening to absorb, an easing of the “multi–region, multi–causal” supply headwinds we have been repeatedly referencing, and a tilt towards El Nino looming on the horizon.

Six months ago, we put forward a framework for thinking about what a resumption of the China–Australia trade might look like: noting that at the time of writing we did not have any firm indications one way or the other on the re–opening of borders. After tabling our view that “As of today, a swift normalisation to pre–ban norms is much less likely than a tentative reset in calendar 2023”, we argued that “While in the medium–term trade flows are likely to converge on the intersection of logistical efficiency and optimised customer blending preferences, it is unclear exactly what the path to the medium–term will look like.” These are the main considerations we then put forward for assessing how the bilateral trade and broader industry might evolve, with updates for material developments over the last six months.

Copper Copper prices ranged from $7,910/t to $9,436/t ($3.59/lb to $4.28/lb) over the second half of the 2023 financial year, averaging $8,703 /t ($3.95/lb).26 The average was around +11% higher than in the prior half but –11% versus the equivalent half of financial year 2022.

It is the nature of the copper industry that the base price narrative for any given period can often be told without direct reference to industry–specific fundamentals. As the preceding paragraph illustrates, that was the case again in the first half of calendar 2023. It so happens that on this occasion, the fundamental picture was somewhat ambiguous, so trading macro fluctuations was perhaps the path of least resistance. At a high level, part of the complexity came from the fact that while the industry has moved into a small surplus situation in the first half of calendar year 2023, as proxied by steadily rising treatment and refining charges (TCRCs) for concentrates [four–fifths of primary production], this has not been well reflected in visible cathode stocks, which have been stuck at very low levels. Operational performance has also remained patchy, with another year of at least 5% disruption versus initial guidance likely. If there is modest slippage from producer expectations in the second half of the year, overall units could yet be in balance.

China has also been something of an enigma in calendar 2023 to date. Industry participants have been challenged to distinguish between the negative sentiment directed towards the general Chinese economy in the June quarter, declining YoY imports and unattractive CIF premia in Shanghai, and the reality that the most copper–intensive parts of the system were doing extremely well (end–use is likely to increase around +6% YoY in calendar 2023 while refined production registered double–digit growth in half one), even as inflows relating to financing demand cratered27 and net exports of semis continued.

It is the physical segment that interests us the most of course, and so it is Chinese end–use that we tend to focus on. At the time of our half–year results for financial 2023, we recounted the mixed performance across sectors in calendar 2022, where a dichotomy between end–uses facing the traditional economy and end–uses leveraged to the energy transition was a major theme. In calendar 2023 to date, energy transition demand has remained strong, but this time the majority of the traditional sectors are also in the plus column. The standouts have been construction (where the “housing delivery” mantra has seen copper–intensive completions jump +19% YoY, in stark contrast to the still very weak starts situation), air–conditioners (+17% YoY), NEVs (rebounding quickly after a short de–stocking cycle) and power infrastructure (a combination of decarbonisation technology and conventional grid and generation outlays). Within the broad power infrastructure category, investment in the grid (around 18% of total end–use) was +7.8% YoY (outstripping the State Grid budget of +4%), and power source investment was +54% YoY, with solar installation up +154% YoY.

Wind and solar together saw 101.4 gigawatts installed in the first half of calendar 2023, with solar having now surpassed hydro as China’s second largest power source by capacity. As an aside, while making comparisons with hydropower, 101 gigawatts is roughly equal to the total hydro capacity that the United States has built up over the last century or so. China has just installed the same nameplate capacity in renewables in half a year.

We have already referenced that under the Bloomberg NEF definition, China saw a +70% uplift in energy transition investment across calendar 2022. Another large number is on the way for calendar 2023. This broad–based performance seems likely to ensure copper out–performs steel for a third consecutive year.

In the ROW, refined demand struggled in calendar 2022 and has weakened further in calendar 2023. The major OECD regions (about 30% of global demand) are all on track for annual contractions in calendar 2023, which easily offsets strength in India (+8% YoY, but only 3% of demand) and resilience in the remainder of the developing world (+1.5% YoY, 14% of total). With Chinese demand up strongly, the ROW share of world refined demand is expected fall –2 percentage points by the end of calendar 2023, to around 44%.

On the supply side of the industry, the copper concentrate balance has loosened a little, with the average spot TCRC in the first half of calendar 2023 ($79/dmt & US 7.9¢/lb, according to FastMarkets) rising to the highest level since 2019 (noting higher rates favour the smelter and lower rates favour the miner). The spot TC closed the 2023 financial year in the high $80s. More favourable TCRCs are underpinning smelter profitability, with acid by–product revenues having come off sharply over the last twelve months. Notably, China’s acid exports fell –55% YoY in the first half of calendar 2023: an unflattering commentary on the state of global heavy industry. Within that though, Indonesia has supplanted Chile as the #1 destination for these shipments, with the rapid ramp–up of HPAL (high pressure acid leaching) nickel facilities leading to a fourfold lift in acid imports in just one year.

As of July–2023 (i.e., with the benefit of some June quarter operational reviews), Wood Mackenzie had so far identified disruptions equivalent to 1.7% of initial production expectations in calendar 2023. That compares to an average run–rate of 1.9-2.2% in 2019-2022 (excluding the outlier observation from the peak of the Great Lockdown in 2020). Our reading (with a slight advantage of having seen most Q2 operational reviews) is that rather than looking at a better than average operational performance, which a literal reading of the Wood Mackenzie figure would imply, 2023 is likely to see a slightly higher than average level of disruptions. Our point estimate is 5½%. Note that 5% is the long run average for this metric: and that is our default assumption at the outset of any year. However, as we indicated in this report six months ago, a normal year for disruptions in percentage terms in calendar 2023 would be far worse than average in terms of expected copper units from the perspective of two years ago. That is because several major copper producers lowered their guidance for calendar 2023 during 2022 or very early in 2023 – and on our estimates these downward revisions were worth ~3.1 percentage points of pre–disruption primary production (~3.4% post disruption) versus what was guided for 2023 at the outset of 2022. Therefore, a “normal” 5% in calendar 2023 versus year-opening guidance would be the operational equivalent of 8–8½% if guidance had not been pre-emptively lowered. From our current vantage point, that may be precisely where we are headed. That is a major reason why we are hedging our mid-case call on the calendar 2023 mass balance. Weak operational performance clearly has the potential to erode the modest ex ante surplus we derived at the outset of the year.

These expected deficits are a joint function of historical under–investment in new primary supply and geological headwinds at existing operations intersecting with the “take–off” of demand from copper–intensive energy transition spending that we expect will be a key feature of global industry dynamics as the final third of the 2020s arrives: if not earlier.


Turning to the longer term, we believe that nickel will be a substantial beneficiary of the global electrification mega–trend and that nickel sulphides will be particularly attractive. This is due to their relatively lower cost of production of battery–suitable class–1 nickel than for laterites, as well as the favourable position of integrated sulphide operations on the GHG emissions intensity curve.

In terms of Australia’s critical minerals list itself, which is currently under review, copper, nickel and uranium are, in our opinion, natural additions due to their integral role in the energy transition and their inclusion in the lists of many other producing and consuming regions, including the nation that is arguably most like Australia in this context - Canada.


The old saying that “the best cure for high prices is high prices” is very pertinent in potash.

Getting away from temporary adjustments in trade flows and logistical issues, how will the new geopolitics of the FSU impact upon the potash industry in the longer run? The most honest answer is that it remains too early to tell. The secondary answer is that at a minimum it is reasonable to expect a delay of some years from the original timetable for new mines in the FSU.

Longer–term, we see potash as a future facing commodity with attractive fundamentals. Demand for potash stands to benefit from the intersection of global mega–trends: rising population, changing diets and the need for the sustainable intensification of agriculture.

Inputs and inflation trends

Regulatory shifts are also likely to influence industry evolution in coming years, with the IMO’s newly minted “close to 2050” net zero pledge, and the shorter–term targets that lead up to that milestone, requiring decisive action across the maritime ecosystem if they are to be achieved.

Important notice:

This article contains forward–looking statements, including regarding trends in the economic outlook, commodity prices and currency exchange rates; supply and demand for commodities; plans, strategies, and objectives of management; assumed long–term scenarios; potential global responses to climate change; and the potential effect of possible future events on the value of the BHP portfolio. Forward–looking statements may be identified by the use of terminology, including, but not limited to , “intend”, “aim”, “project”, “see”, “anticipate”, “estimate”, “plan”, “objective”, “believe”, “expect”, “commit”, “may”, “should”, “need”, “must”, “will’, “would”, “continue”, “forecast”, “guidance”, “trend” or similar words, and are based on the information available as at the date of this article and/or the date of BHP’s scenario analysis processes. There are inherent limitations with scenario analysis, and it is difficult to predict which, if any, of the scenarios might eventuate. Scenarios do not constitute definitive outcomes for us. Scenario analysis relies on assumptions that may or may not be, or prove to be, correct and may or may not eventuate, and scenarios may be impacted by additional factors to the assumptions disclosed. Additionally, forward–looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties, and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this article. BHP cautions against reliance on any forward–looking statements, including in light of the current economic climate and the significant volatility, uncertainty and disruption arising in connection with the Ukraine conflict and COVID–19. Except as required by applicable regulations or by law, BHP does not undertake to publicly update or review any forward–looking statements, whether as a result of new information or future events. Past performance cannot be relied on as a guide to future performance.

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1 Data and events referenced in this report are current as of August 14, 2023. All references to financial years are June–end, as per BHP reporting standards. For example, “financial year 2023” is the period ending 30 June 2023. All references to dollars or “$” are US dollars unless otherwise stated. The data is compiled from a wide range of publicly available and subscription sources, including national statistical agencies, Bloomberg, Wood Mackenzie, CRU, IEA, ILO, IMF, Argus, CREIS, Fertecon, FastMarkets, SMM, Parker Bay, MySteel, Platts, LME, COMEX, SHFE, ICE, DCE, SGX, and S&P Global, among others.

2 The UN released new long–term population projections on World Population Day (July 11, 2022). At a global level, these are essentially unchanged from the prior vintage out to 2050. There are, however, important regional differences and there are considerable changes in the second half of the century. We will review these changes and their implications in a future blog.

3 Data comparisons are between 2019 and 2030 and reflect our central case forecasts, which incorporate aspects of the potential physical impacts of climate change for regions around the world and responses to them for these global indicators, the projected “green” investment boom, estimates of global inflation and the likely impact of expected climate policies. GDP is in nominal US dollars, on a base of $87 trillion in 2019, with changes being the absolute difference between the 2019 actual and the 2030 projection. Capital spending is estimated based on the expected share of gross capital formation (GCF) applied to this measure of GDP. In PPP terms, the 2019 GDP base is around $135 trillion.

4 Paris–aligned” means a societal pathway aligned to the aims of the Paris Agreement. The central objective of the Paris Agreement is its long–term temperature goal to hold global average temperature increase to well below 2°C above pre–industrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre–industrial levels.

5 We note, of course, that there is an almost infinite array of technical, behavioural and policy assumptions that can achieve this end in combination, and our 1.5–degree scenario is just one of the many. Each unique pathway produces a unique call on commodity demand and presents a unique incentive matrix vis–a–vis supply. This highlights the need to avoid treating any single pathway as the sole source of “truth”. That is too heavy a burden for any one scenario to carry. As the common knowledge base of publicly available Paris–aligned scenarios continues to grow, we will continue to learn from this invaluable collective resource to improve the work that helps to inform our strategic deliberations. The statement in the text is explicitly based on the commodity demand and price impacts of our 1.5–degree scenario, a technical pathway modelled in consultation with Vivid Economics which requires steep global annual emissions reduction, sustained for decades, to stay within a 1.5°C carbon budget. Demand figures derived from the pathway, together with its assumptions and limitations, are described in our Climate Change Report 2022, available at

6 Available from–zero–emissions

7 Six of the sixteen measures focus on the financing real estate development. They are (1) Stabilise real estate development loan growth. (2) Support reasonable demand for individual housing loans. (3) Stabilise credit support of construction companies. (4) Support the extension of existing real estate development loans and trust products. (5) Stabilise bond financing. (6) Stabilise trust products financing. Two were related directly to the delivery of stalled projects, one citing development banks and the other for the general finance industry. Two related to the resolution of distressed developers, covering M&A and the role of asset management companies (AMCs). Two related to consumer protection for those struggling to service loans. Two related to relaxing the strict enforcement of banks’ macroprudential ratios vis–à–vis the sector. The final two related to M&A within the sector and the promotion of REITs in the rental segment.

8 These are 2023 estimates by the IMF. See page 44 of the report available from:

9 The relative size of the two segments moves considerably over the course of cycles. The non–commodity segment was 72% of starts and 79% of completions in calendar 2022. However, such was the scale of the starts ramp–up in the multi–year upswing that led up to the pandemic, that developers still account for 58% of the stock of floor space underway.

10 It is not an all–time low, partly because the commodity housing market did not exist until the late 1990s, and therefore the inventory figures were exceedingly small in absolute terms in the 2000s.

11 Household size is from the decadal Census. Sample surveys are conducted more frequently but the data is of substantially lower quality than the Census.

12 Estimates from the China Household Wealth Survey Report: The proportion of real estate remains high_China Economic Network National Economic Portal (

13 China has a target to increase the share of rural sewerage that is treated from 28% in 2020 to 40% in 2025. That is also an interesting datapoint for those wondering if China is saturated with infrastructure (no pun intended). Developed countries treat about three-quarters of their sewerage, on average.

14 These figures are exports produced in the country. Japanese auto sales produced by affiliates abroad dwarfs their direct export numbers. Of the approximate 24 million sales of Japanese auto makers in 2022, 70% were foreign affiliates, 17% were domestic and 13% were traditional exports. So, while China may be the largest exporter now, but it is still far from being the larger seller of cars in foreign markets.

15 Definitions can be found here:

16 Interestingly, China’s wind turbine exports are –6.5% YoY in the first half of calendar 2023 – another sign that this critical value chain is going through a difficult period globally. Other signposts include job losses among major western OEMs, asset write–downs, and a string of offshore wind project cancellations.

17 The Observatory of Economic Complexity (with MIT roots) and Harvard’s Atlas of Economic Complexity are the two competing sources.

18 This range should be treated with modest caution, given different weighting systems, different years of publication and the fact that a bullish or bearish disposition towards US growth may bias the relative level assessed for China. We feel though that the information is broadly indicative of the best thinking on this incredibly important topic.

19 Data on steel and pig iron in this chapter are from WorldSteel and official agencies, unless specified otherwise. Some growth rates have been rounded and historical figures have been revised since our previous version of this report.

20 This distinction is made to avoid confusion with seasonal restrictions on heavy industrial activity based principally on air–quality concerns, which have a much longer history, particularly in Beijing and surrounding areas.

21 The latest information on steelmaking processes have led to a revision of historical estimates of margin levels. All figures are presented on this updated basis. Margins reported in previous vintages of this outlook are thus not like–for–like.

22 A BF–BOF operation is an integrated process with “hot metal” (molten pig iron) produced in the BF then transferred to the blast oxygen furnace (BOF) for conversion into steel.

23 Note that the net exports increased to around 12% of production in 2015 and 2016, circa 100 Mtpa, on a much smaller production base than today. That spike in exports was a sign of stress.

24 The tragic Brumadinho tailings dam collapse occurred in the south–eastern Brazilian state of Minas Gerais in January 2019. With hindsight, it has been revealed as a key inflection point for the iron ore market.

25 The abbreviations used in the metallurgical coal section are as follows – PLV: Premium Low–Volatile, MV64: Mid–Volatile 64, PCI: Pulverised Coal Injection, SSCC: Semi–soft Coking Coal, as published by Platts. Unless specified otherwise, figures are rounded to the nearest dollar and are quoted in free–on–board (FOB) terms. The terms “coking” and “metallurgical” coal are used interchangeably throughout the text.

26 These approximations are based on a sample of mills, not a census. Note a BF is typically relined every 20 years or so.

27 LME Cash Settlement basis. Daily closes and intra–day lows and highs may differ slightly.

28 A decade ago, stocks in Chinese bonded warehouses reached 1 Mt. Today, there is less than 100 kt.

29 A MOF ruling in 2022 specified that Chinese scrap firms are required to pay 3% of their general revenue in VAT, a concessional rate from the general scheme of 13% of added value. Reportedly, many firms were not paying any VAT, and their business models are coming under strain as local authorities are no longer willing to look the other way with fiscal stress high.

30 While this is most evident in Asia, Class-II ferro-nickel producers have also faced considerable discounts outside Asia.

31 Historical data is compiled from a composite of sources (Wood Mackenzie, SMM and CRU), with some BHP estimates.

32 We focus on key uncertainties in the main text, but the future path of conventional non–battery demand is also worthy of note. Nickel first–use is dominated by the stainless steel sector. It comprised more than two–thirds of primary demand in the 2010s but has been losing ground to batteries at the rate of a few percentage points year in the 2020s. Non–stainless, non–battery demand has been more stable in its share around one–fifth. Nickel end–use is diverse, with broad sectoral exposure to construction, consumer durables and electronics, engineering, metal goods and transport, in addition to finished batteries.

33 An interesting study from the IFC provides estimates of the land–use GHG emissions impacts on copper and nickel mining. See–net–zero–roadmap/

34 Climate-Smart Mining: Minerals for Climate Action (

35 Fertiliser–grade MOP is commonly sold in powder (“standard”) or compacted “granular” forms, abbreviated as sMOP and gMOP respectively. gMOP typically sells at a premium. Major demand centres for sMOP include China and India, while gMOP is prevalent in the Americas. Pricing data sourced from Fertilizer Week and public filings.

36 All trade data in this section are from S&P Global.

37 The Kharif is one of India’s two main cropping seasons, the other being Winter (Rabi). Kharif tends to coincide with the monsoon, with crops (staples being rice and corn) sewn alongside the early rains and harvested at monsoon end. Wheat and barley are staple Rabi crops.

38 The potassium uptake of crops comes from (a) native K in the soil, (b) crop residues, (c) manures, and (d) chemical fertiliser. These shares vary widely by region, but the global averages are 30% from the coil, 20% from manures, 20% from crop residues and 30% from fertilizer. We anticipate that the fertiliser share will rise over time as soil fertility depletes.

39 For more on the Global Boundaries framework, see W. Steffen et al., Science 347, 1259855 (2015).

Chris joined BHP two years ago and took over the reins of managing Jasper Asia in 2022. He is proud of BHP’s inclusive culture and active bystander program, hoping that when colleagues call out harmful behaviours, it helps to create a safe space for LGBTQ+ people to write and share their stories.

2023 Annual Reporting Suite

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Table of contentsChinaIFBUT IFSteel and pig ironIron oreiron ore pricesMetallurgical coalMetallurgical coal priceCopper Copper pricesNickelnickel pricesPotashInputs and inflation trendsmaritime bulk freightammonium nitrateEarth–moving tyreSulphuric acidPower pricesChilean spot power pricesAustralian NEM spot power pricesDiesel pricesmining machinery and equipment manufacturingconstruction machinery PPIImportant notice:No offer of securitiesReliance on third party informationBHP and its subsidiariesFootnotes