BHP Group Ltd (ASX: BHP) shares are taking a Trump tariff beating on Monday, alongside most other Aussie stocks.
Shares in the S&P/ASX 200 Index (ASX: XJO) mining giant closed Friday at $36.82. In afternoon trade today, shares are changing hands for $34.82 apiece, down 5.4%.
For some context, the ASX 200 is down 4.0% at this same time.
BHP shares are catching headwinds amid a near 4% drop in the iron ore price, with the steel-making metal falling below US$100 per tonne to trade for US$97 per tonne.
Copper, BHP's second largest (and growing) revenue earner, fell even more sharply. The copper price tumbled 6.3% over the weekend to trade for US$8,780 per tonne.
Both copper and iron ore prices are highly influenced by demand (or expected future demand) from China. China is the world's top iron ore consumer and the number one export market for Australian ore.
And the Middle Kingdom plays an important role for BHP shares, with the miner earning some 62% of its revenue from iron ore and, to a lesser extent, coal sales to China.
With that in mind, here's what BHP chief commercial officer Rag Udd expects from Chinese iron ore demand in the years ahead (courtesy of The Australian Financial Review).
What's ahead for iron ore and BHP shares?
Recurring news of China's sluggish, steel-hungry property markets has led many investors and analysts to expect far lower iron ore prices ahead. Expectations that have thrown up headwinds for BHP shares.
But Udd said that markets are missing another part of the picture. Namely the big steel demand boost being driven by other sectors in China, like EVs and industries involved in decarbonisation.
"I still hear conversations taking place about residential construction markets tanking in China," Udd said. "But the equal and opposite conversation that gets missed is that machinery has gone from single digits to over 30% of steel demand. EV production has gone up. Anything to do with decarbonisation has gone up."
Udd added:
So, you've got a country that's actually running at that billion tonnes of steel production per year rate and has been quite consistently for the last six years, and I can see a pathway for that continuing in the next few years.
That is not based on any one sector but based more on the resilience and the adaptability and how fast China moves when it pivots to new industries and opportunities. The Chinese market is much more resilient and agile than people recognise.
What about growing global supply forecasts?
Analysts have also been warning that significant new supplies due to start coming online in Guinea's Simandou region in 2026, could suppress iron ore prices and, by connection, BHP shares.
According to the AFR, the new iron ore mines in Simandou are expected to produce around 120 million tonnes of the steel-making metal by 2030.
However, Udd said markets were again missing part of the picture here. In this case, the depletion from existing iron ore mines over this time.
"The conversation around Simandou being a Pilbara killer is overplayed. We are talking about 120 million tonnes in a global contestable market of well over 1.5 billion tonnes," he said (quoted by the AFR).
According to Udd:
The thing that sometimes gets missed here is depletion, and some studies estimate depletion of almost a quarter billion tonnes of iron ore coming out of the market between 2025 and 2035.
So, how about the iron ore price investors in BHP shares might expect over the coming years?
"We still see cost support in the US$80 to US$100 price range moving forward,' Udd said.
"I think depletion will factor into it. I think inflation will be the other element that kicks in. I actually see quite a healthy market moving forward," he added.
