BHP, the world’s largest mining company, said China will act as a “stabilizing force” for commodity demand this year as Beijing’s pro-growth policies offset weak economic performance in other developed markets.
The Australian resource company said on Thursday that China’s reversal of Covid-19 restrictions and stimulus for the property sector, a key driver of iron ore demand, would support a “progressive recovery from difficult economic conditions in the first half”.
The company reported record iron ore production for the first half of the fiscal, producing 132 million tons of steelmaking material. BHP shares in Australia closed up 1.2 percent.
“BHP believes China will be a stabilizing force when it comes to commodity demand in calendar year 2023, with OECD countries experiencing economic headwinds,” said Mike Henry, BHP chief executive.
The bullish outlook for China comes after Beijing eased restrictions on the pandemic that have slowed growth in the world’s second-largest economy. Xi Jinping’s administration is seeking to end international isolation and initiate activities.
As part of this policy reset, Australia’s first coal shipment to China in two years is expected to arrive next month, effectively ending the ban on coal trade and signaling a diplomatic thaw between the two commodity superpowers.
In 2020, Beijing imposed an unofficial ban on coal imports from Australia – which previously sent about a fifth of its coal to China – after Australia joined a security pact with the US and UK.
Now, Chinese companies have started buying Australian coal again and the first cargo is on route, according to shipment data from KPLER, the data provider.
Glencore is understood to be one of the miners selling Australian coal to China after diplomatic ties broke down. BHP used to be an exporter of coal to China before the ban, but has since shipped to Japan and India.
However, miners and analysts warn that Australia-China coal trade will not return to pre-pandemic levels.
For metallurgical coal, which is used to make steel, China has found new sources in Russia and Mongolia, helping to make up for the volume supplied by Australia, according to Dmitry Popov, a coal analyst at consultancy CRU Group.
“Our expectation is that it is interesting for China to buy Australian coal and we think that the demand for Australian coal will pick up,” said Popov. “However, we do not think trade will return to pre-pandemic levels.”
For thermal coal, China has increased domestic production and also imported more from Indonesia. At the same time, Australia’s coal exports were limited last year due to logistical challenges and heavy rains.
One of Australia’s major coal producers welcomed the ban. “China is a big market . . . and by definition, if you can’t sell to China, you’re at a loss,” the producer said. “The more markets you have, the better for sellers.”