BHP and Rio Tinto discuss energy transition; bet on minimal Trump impact: Russell

BHP Group, Rio Tinto and other mining giants have delivered similar results and outlooks this week for commodities. They chose to focus on the benefits of the energy transformation and minimise short-term risk.

BHP, world's largest mining company, announced on Tuesday that its underlying profit attributable for the six-month period ending December 2024 had dropped by 23% to $5.08 billion.

Rio, the largest iron ore mining company in the world, announced underlying earnings for 2024 of $10.87 Billion, down from $11.76 Billion a year earlier.

Both companies blamed the lower earnings on iron ore. This is the main raw material used to make steel and is the most dependent commodity on China. China buys around three quarters of the global seaborne volume.

The price of iron ore contracts on the Singapore Exchange fell by 24% in 2024. This was largely because China's economy, particularly in the residential property sector, struggled to gain momentum.

China's imports increased from 1.18 billion to 1.24 billion metric tonnes in 2024.

Data suggests that the extra volumes were used primarily to replenish inventories, with traders and mills restocking to take advantage of falling prices.

BHP CEO Mike Henry talked up prospects for a recover in iron ore, copper and steel in his remarks during the results presentation. He said that the global monetary easing "is expected to translate into a near-term recovery for the demand for steel and Copper across the OECD."

Henry acknowledged the risks associated with President Donald Trump's new trade measures. However, he said that BHP's exposure to U.S. tariffs is small as the United States accounts for only 3% of its revenue.

It may be true. But the real danger is that tariffs will spark a larger trade war, which could lead to a global economic slowdown and a rise in inflation.

The policymakers are faced with a dilemma: how to deal with the inflation that is caused by tariffs. This calls for tighter monetary policies, while slower economic growth calls for an easing.

The central banks will likely pause rate cuts while they wait for inflation to slow and for weaker economic growth to appear.

This would be a challenge to the rosy forecast for 2025 in terms of commodity demand. The rosy outlook is dependent largely on the benign view that Trump's tariffs will play out rather than a more realistic view with regards to significant impacts, as more measures are introduced and other countries retaliate.

Beyond Control

In his statement, Rio Chairman Dominic Barton stated that the world was "clearly experiencing significant geopolitical instability with conflict and trade tensions at both domestic and international levels."

Barton stated that "there will be more volatility in 2025 but we are working to control what is under our control, and Rio Tinto has a good position to manage risk."

This is the most important point in some ways. Many of the events that may occur in 2025 are beyond the control and influence of companies. They will be held hostage by geopolitical changes which could change economic dynamics.

BHP and Rio are both keen to highlight how well-positioned they are for the energy transformation. Both companies cited their copper assets while Rio also highlighted the rapid ramp up of its lithium project.

BHP believes that the global demand for copper will exceed 50 million tonnes by 2050. This is 70% higher than 2021.

The implications for the long term are obvious. BHP and Rio are both going to become more copper focused companies, while still running their iron ore assets efficiently in order for that part of revenue base to remain robust.

Both companies bet that Trump's effect on the global economy will be limited.

Best-case scenario is that Trump does not hit global growth with tariffs too hard in 2025. Longer-term, the hope is to ensure that Trump's denialism about climate change and promotion of fossil-fuels will not derail the energy transition.

These are the views of the columnist, an author for.

(source: Reuters)