Column: Iron ore blamed for BHP’s profit drop. It may get worse

Lower iron ore prices copped the blame for BHP Group reporting its lowest annual underlying profit for five years.

But the news is unlikely to get better for the mining giant as iron ore demand flattens in dominant importer China and a wave of new supply threatens to overwhelm any increase in consumption in other countries.

BHP, the world’s biggest listed mining company, on Tuesday reported underlying attributable profit of $10.16 billion for the year ended June 30, down 26% from last year and below the Visible Alpha consensus of $10.22 billion.

The average realized price BHP received for its iron ore fell by 19% over the financial year.

Despite the lower price for its main profit driver, BHP’s iron ore mines in Western Australia state remain a prized asset, with the miner reporting a cash cost of $17.29 for producing each metric ton of the key steel raw material.

The low cost of mining iron ore compares favourably to the benchmark contract on the Singapore Exchange , which ended at $101.63 a ton on Monday.

However, the price has been trending lower since its reached its record high of $223.94 a ton in May 2021, with a high of around $160 in 2022, $131 in 2023, $143 in 2024 and just $107.81 so far in 2025.

The decline in prices has largely been driven by a flattening of demand in China, which imports around 75% of global seaborne iron ore, which it uses to produce just over half of the world’s steel.

China’s annual steel output has been anchored in a fairly narrow range around 1 billion tons for the past five years, and 2025 is setting up for a similar outcome.

China’s steel output dropped to a seven-month low in July of 79.66 million tons, down 4% from June amid weaker construction demand because of high temperatures and heavy rains in some parts of the country.

For the first seven months of the China produced 594.47 million tons of steel, putting it on track for annual output around 1 billion tons.

There is some optimism that even as China’s steel output flattens that increasing production in other countries, especially India, will result in higher iron ore demand.

BHP chief executive Mike Henry was optimistic about demand for company’s commodities in a call with media after the results were released on Tuesday, singling out India as a growth opportunity.

The problem for BHP and other iron ore miners is likely to be timing.

Supply inbound

This is because they are bringing on new supply and while demand for iron ore may well rise in coming years, the increasing risk is that the supply arrives ahead of the demand, much as it did in the last decade, driving the Singapore contract to an all-time low under $40 a ton in December 2015.

BHP’s Henry said the company is on track to increase its annual iron ore output from 290 million tons to 305 million.

But this pales in comparison to what is coming from the massive Simandou project in the West African nation of Guinea, where a consortium of Chinese miners and Rio Tinto are expected to start shipping by the end of the year.

It will take a couple of years for Simandou to ramp up to its planned annual capacity of 120 million tons, but adding that iron ore to the market at a time when other miners including Brazil’s Vale are also lifting output means prices could be driven lower by too much supply.

If there is a silver lining for BHP it’s that any decline in prices may be limited as high-cost supply becomes uneconomic and leaves the market.

There is upwards of 100 million tons per annum of iron ore that is produced at a cost above $90 a ton, and this would be vulnerable if prices drop below this level.

(The views expressed here are those of the author, Clyde Russell, a columnist for Reuters.)

(Editing by Michael Perry)