Shares in BPH Group Ltd (ASX: BHP) fell today after a senior executive at the company warned that Australia's trade tensions with China are a danger to the economy. The BHP share price closed 1.1% lower on Friday, with shares in the resources company swapping hands for $47.75.
According to reporting by The Australian, president of BHP Minerals Australia Edgar Basto believes Australian producers could face a 50% decline in the sale price of coking coal if they are unable to export to China. Coking coal – also known as metallurgical coal – is used to make steel.
BHP produced around 70 million tonnes of coking coal in 2020.
The coal was unofficially banned by the Chinese Government in October last year. ABC News reported late last year that, in 2019, 24% of Australia's coking coal was exported to China.
Let's take a closer look at Basto's sombre warning.
Trade tensions have BHP on edge
Yesterday, Basto spoke at the Competitive Advantage Forum, hosted by BHP and The Australian.
He told the forum that losing China as a coal trading partner could have a devastating effect on producers' bottom lines.
Basto was quoted by The Australian today as saying:
What we are seeing … in terms of the impact to coal prices is significant and it does have an impact…
I have heard comments like, you know, it is OK, the coal being produced in Australia and in Queensland is being placed in different markets so there's no harm there.
I don't think that is right because the differential in price is almost half what we are getting for our coal than what others are getting in China…
It's important to work in being competitive but you will start to see some production being taken out of the market because high cost producers will have to do that.
BHP is also a major producer of Australian iron ore. China's importing of the mineral is yet to be affected by the political tensions. Although, China's National Development and Reform Commission has said it plans to up its domestic iron ore production.
On the risk of Australia losing China as an iron ore trading partner, Basto was quoted by The Australian as saying:
The outlook looks good long term but unfortunately the here and now is a slightly different story…
Overall I think it's a risk to the Australian economy and it's an important risk and I think we should be candid in the way we evaluate the risk.
BHP share price snapshot
Despite a poor end to this week, BHP shares are still having a good run on the ASX recently.
Currently, the BHP share price is up 12.54% year to date. It has also gained 38.37% since this time last year.
The company is one of the ASX's largest, with a market capitalisation of around $142 billion. It has approximately 5 billion shares outstanding.
