Investors Eye Chinese Economic Recovery as Australian Miners Report Profits
This week, investors are on high alert for insights from Australia's mining giants regarding the Chinese economy's recovery post-Lunar New Year break. Eyes are particularly on BHP, Rio Tinto, and Fortescue Metals, who are all scheduled to release their half-year results consecutively from Tuesday to Thursday. Starting the year on a high note, their share prices surged, buoyed by iron ore's leap beyond the $US140 mark, thanks to anticipated stimulus measures from China. However, recent weeks have seen a pullback amid renewed concerns over China's economic downturn and its potential impact on iron ore demand.
Given that BHP and Rio Tinto derive over half of their revenues from China, with Fortescue's dependency even higher at approximately 90%, the stakes are particularly high. The ramifications extend beyond the corporate sphere to national economics, with iron ore representing about 60% of Australia's exports to China.
Investment analysts at Jefferies have pointed out the looming shadow of the Chinese property market's instability and broader concerns regarding non-residential construction's global slowdown. Despite these challenges, there's a silver lining with signs of domestic consumption recovery in China, hinting at a possibly strong market opening.
Yet, the overarching sentiment remains cautious. ANZ's senior commodity strategist, Daniel Hynes, expressed skepticism about the potential impact of any stimulus measures from the Chinese government, suggesting that while they might slow the decline in property investment and construction activity, a significant market rally is unlikely.
This cautious outlook is shared among Australian miners, who are increasingly acknowledging the impending plateau of steel demand growth. This realization is prompting a strategic evaluation of their projects, aiming for a balanced supply-demand dynamic in the coming years.
Financial forecasts from Macquarie Equities set high expectations for the mining sector, with BHP anticipated to report a $US6.5 billion underlying profit for the half year, Rio Tinto expected to announce a full-year profit of $US11.6 billion, and Fortescue projected to reveal a $US3.3 billion profit for its half-year.
As BHP faces challenges with its nickel operations, recently marking them down to zero, the Australian government's move to list nickel as a critical mineral could open doors to significant financial support. This is coupled with the West Australian government's offer of royalty relief for the nickel industry, potentially mitigating some of the sector's current challenges.
