BHP Group's Latest Results, Iron Ore Prices, And The China Equation

BHP Group's (NYSE:BHP) latest results showed that commodities continue to be under pressure, largely due to monetary tightening, which has resulted in the prices of key commodities such as iron and copper, falling in the near term. But the fundamentals for these commodities remain intact mainly due to the fact that these commodities remain within fundamentals

Article Thesis: Iron remains relatively abundant and is being produced at a level, which means prices will remain around where they are, and may only increase slightly as supply-demand dynamics remain pretty even. China remains the biggest factor in the current scenario since they import most of the global iron ore, but questions remain about their own demand. BHP's exposure to China is key and is likely to affect the company's fortunes for the next few quarters.

Iron ore sales which make up the majority of revenue were much lower as a result of iron ore prices falling by 25%, YoY, this led to profits coming in at $6.46 billion compared to $9.44 billion during the same period last year. This follows the trend as iron ore prices skyrocketed in 2021, as loose monetary policy drove liquidity towards commodities on the back of government fiscal outlays. But since then we are in a deflationary environment, and fiscal deficits are a lot less abundant, with interest rates hitting much higher levels. This is putting downward pressure on commodities, along with a strong dollar. Expect results to remain muted for a while until conditions ease up.