BHP Group Ltd (LSE:BHP, ASX:BHP) has posted a bigger-than-expected 32% drop in first-half profit owing to a fall in iron ore prices, although it also flagged a brightening outlook for its biggest customer, China.
The global miner said China's strict zero-COVID-19 policy curtailed economic activity and dented demand over the past year, driving iron ore prices down from lofty levels, while miners wrestled with surging costs and a tight labour market in Australia.
As a result, the FTSE 100-listed group reported underlying profit attributable from continuing operations of $6.6bn, down from $9.72bn a year earlier and below estimates of $6.82bn, as earnings from copper and coal came in lower than analysts had expected.
The firm's giant Escondida copper mine in Chile was hit by road blockades during the period that disrupted mining supply deliveries.
However, BHP's interim dividend of 90 US cents (c) per share, while down 40%, beat estimates for 88c.
The miner said it sees "markedly higher" price floors for some commodities than prior to the COVID-19 pandemic given the rising marginal cost of production.
"The lag effect of inflation and continued labour market tightness are expected to impact our cost base into the 2024 financial year," BHP said in its results statement, as it logged a $1bn inflation hit, primarily from diesel costs, for the first half.
BHP also said it expects aggressive global interest rate hikes from last year to slow growth sharply across the developed world.
However, after a difficult first half, the miner said China appears to be a "source of stability" for commodity demand, as the world's second-largest economy and top metals consumer reopens.