What's the outlook for BHP following its latest production report?

We examine some of the key points from BHP’s latest quarterly production report.

BHP share price stumbles

The BHP Group (ASX: BHP) share price fell 60 cents or 1.9%, to $30.22 per share, in the first hour of trade, after the mining giant released its latest quarterly production figures.

Like Rio Tinto, BHP’s management noted that:

'While demand in China has strengthened in recent weeks we expect other major economies, including the US, Europe and India, to contract sharply in the June 2020 quarter.’

With the company adding that:

‘The situation remains fluid, however, with our strong financial position and low-cost operations, our business is resilient, with capacity to generate solid cash flow through this period and emerge well placed as the global economy recovers,’ BHP said.

Regardless of the miner’s resilience, on a quarter-over-quarter basis, BHP today reported that production of all its major commodities declined in the March 2020 quarter.

The miner’s Metallurgical coal division was the worst performing here, with production falling 16% in the March quarter, attributed primarily to heavy rainfall during the months of January and February.

Iron ore remains on track

Elsewhere, BHP’s iron ore production was also impacted by adverse weather conditions, with iron ore production falling 1% in the March quarter.

Short-term production fluctuations aside, on a year-to-date basis, BHP's iron ore production has risen 3% -- to 181 million tonnes (or 205 million tonnes on a 100% basis). The mining giant noted that 2020 iron ore production guidance remained unchanged, at between 242 million tonnes and 253 million tonnes.

Iron ore remains BHP’s most important division, accounting for a staggering 60% of the company’s earnings (EBITDA), as reported in its most recent half-year report.

Petroleum flagged to hit lower bound

Finally, BHP reported sweeping production declines across its petroleum division, with total petroleum production falling 11%, to hit 25 million barrels of oil equivalent in the March quarter.

'In light of the recent significant disruption to oil and gas markets and heightened risk of interruption to field activities, we are reviewing our capital, operating, exploration and appraisal expenditure programs, and where relevant, together with our joint venture partners,’ the company wrote in their latest production report.

For reference, on Monday the May WTI futures contract finished out the session at negative, yes negative US$37.63 a barrel.

Significant disruptions indeed!

Futures market madness aside, BHP currently expects its petroleum production to come in at the bottom of its 2020 guidance range.

The mining giant’s petroleum division accounted for 13% of BHP's earnings (EBITDA) for the half ending 31 December, 2019.


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