 |
| BHP Iron Ore Prices |
Iron ore oversupply and flat Chinese demand continue to pressure BHP's margins and global pricing dynamics.
BHP Group has reported its lowest annual underlying profit in five years, driven by a sharp drop in iron ore prices. The average realized price of iron ore fell by 19% over the 2024 fiscal year, pulling profits down by 26% to $10.16 billion. The market is unlikely to improve in the short term due to sluggish Chinese demand and a surge in new supply.
Chinese Steel Output Plateaus While Weather Impacts Demand
China, which imports 75% of global seaborne iron ore, shows no signs of increasing steel production. For the first seven months of 2025, China produced 594.47 million tons of crude steel, aligning with its long-standing 1-billion-ton annual output trend. July's output dropped to a 7-month low due to adverse weather, down 4% month-over-month to 79.66 million tons. This stagnation limits iron ore demand from the world's largest buyer.
In contrast, BHP’s low-cost operations in Western Australia remain highly efficient, producing at $17.29 per metric ton. However, even this cost advantage cannot offset a market facing oversupply and soft demand fundamentals.
Global Supply Expansion Poses Long-Term Price Risk
Meanwhile, global supply is ramping up. BHP plans to raise its annual output from 290 million to 305 million tons. However, the upcoming supply from Guinea’s Simandou project, backed by Chinese firms and Rio Tinto, is expected to reshape the market. Simandou’s planned 120 million tons per year will compete with output increases from Brazil’s Vale and other majors.
If new supply arrives faster than demand, prices may decline sharply. In 2015, a similar mismatch drove prices under $40 per ton. Already in 2025, iron ore prices have averaged $107.81, down from $223.94 in May 2021. Analysts warn of a repeat downturn if demand outside China—particularly from India—fails to absorb the excess.
ScrapInsight Commentary
BHP’s margin compression reflects broader shifts in global iron ore fundamentals. The price floor may hold above $90 due to high-cost producer attrition. Yet, market balance will depend on Indian steel growth and the phased integration of Simandou. For scrap markets, prolonged ore oversupply may delay ferrous scrap substitution incentives in Asia-Pacific mills.
