5 key takeaways from BHP's FY24 result

BHP's (ASX: BHP) FY24 results showcased remarkable resilience amid global economic headwinds and softening commodity prices. The numbers surpassed analyst expectations and delivered a larger-than-expected dividend, defying concerns over China's economic slowdown, high interest rates and sticky inflation.

FY24 Earnings Summary

• Revenue up 3% to US$55.7bn

• Underlying EBITDA up 4% to US$29bn

• Underlying profit up 2% to US$13.7bn

• Free cash flow up 111% to US$11.9bn

• Net debt down 18.7% to US$9.1bn

• Full year dividend of US$1.46 per share (72 US cents interim and 74 US cents final)

The result was slightly ahead of Goldman expectations (as at 15-Aug), which included FY24 EBITDA expectations of US$28.8 billion, underlying profit of US$13.0 billion and a full-year dividend of 142 US cents per share.

After trawling through the company's FY24 presentation and economic outlook, here are my five key takeaways.

Five Key Takeaways

#1 BHP defied expectations despite China's slowdown: China's slowing economy and struggling property market are curbing demand for metals, particularly iron ore. The steelmaking ingredient makes up almost two-thirds of BHP's revenue. Earlier this month, the head of China's largest steel producer warned that the industry is facing a crisis worse than those in 2008 and 2015. Yet, BHP is still punching out above consensus numbers and a better-than-expected dividend. Today's report reiterates that BHP is one of the world's lowest-cost producers, with the assets and balance sheet to weather any storm. The company's FY25 guidance outlined unit cash costs of US$1.3-1.6/lb for copper, US$18-19.5/t for iron ore and US$112-124/t for coal.

#2 Copper in, iron ore out: BHP's FY24 results presentation noted the word "copper" 78 times compared to the 14 for "iron ore". While BHP is fundamentally still an iron ore business, its capital spend moving forward will predominately focus on future-facing commodities including potash and copper. BHP is seeking to double its South Australian-based copper production by the mid-2030s and is undertaking studies to unlock its massive copper endowment in Chile.

#3 Volatility is here to stay: "We expect volatility in commodity markets to continue over the next 18 months, with a general trend of rising stocks across steel-making raw materials and the non-ferrous industries," BHP noted in its economic and commodity outlook. The report flagged expectations of:

• Refined copper moving towards a marginal surplus alongside a "very tight situation" in copper concentrate

• A "sizeable but narrowing surplus" in nickel

• A "widening surplus" in the iron ore market on average across 2024, with supply likely to continue to outpace demand in 2025

• A "mild surplus" for all seaborne steelmaking coals across 2024, but the supply of higher quality coals remains moderately tighter than the market as whole

• Potash market is approaching a balanced level

#4 More copper is needed: "If we look ahead to the second half of the decade and beyond, there are several key features of the copper value chain that give us confidence in its long-term fundamentals," the outlook report notes. Some of the key drivers include demand from developing countries such as India, Bangladesh and Africa, the energy transition and data centres. BHP expects the transport sector to make up over 20% of global copper demand by 2040, compared to only 11% today. While data centre-related demand, which currently accounts for about 1% of global copper demand, could "grow six-fold out to 2050". As we approach the final third of the 2020s, BHP warned that "it is possible that we enter into a 'fly-up' pricing regime, whereby prices disconnect from the cost curve due to systematic excess of demand over supply amid inadequate inventory levels."

#5 China flat, India up: BHP says China's steel production has plateaued but India is "likely to make up for a proportion of China’s anticipated steel production decline in the post-plateau era, with the country expected to quadruple annual steel requirements in the coming quarter century compared to the start of this decade."