The decline in iron ore prices has become a key factor driving the profit slump at BHP Group. The group reported an annual underlying attributable profit of $10.16 billion, the lowest in five years, marking a 26% decrease compared to the previous fiscal year. This performance also slightly fell short of market expectations. The profit contraction was primarily due to a 19% drop in the average realized price of iron ore during the fiscal year, reflecting the current challenges in the commodity market.
Despite the lower prices, BHP’s iron ore operations in Western Australia maintained strong cost competitiveness. The cash cost of producing one ton of iron ore was only $17.29, demonstrating a significant cost advantage compared to the current benchmark Singapore Exchange contract price of approximately $101 per ton. However, since hitting a record high of nearly $224 per ton in May 2021, iron ore prices have generally trended downward. The peak price in 2024 was $143 per ton, while prices have further retreated to around $108 per ton so far in 2025.
The slowdown in demand from China, the world’s largest iron ore importer, is the main reason behind the price decline. China’s steel production has stabilized at around 1 billion tons annually over the past five years, and this level is expected to remain unchanged in 2025. In the first seven months of this year, China’s steel output approached 600 million tons, aligning with the full-year expectation of 1 billion tons. Production in July alone fell by 4% month-on-month due to weather-related impacts on construction demand, further highlighting the plateau in demand.
BHP’s CEO Mike Henry expressed optimism about demand growth in countries like India, suggesting that India could offset the stagnation in the Chinese market, the downside for prices may be limited. Currently, over 100 million tons of global iron ore production annually incur costs above $90 per ton. If prices fall below this level, such high-cost capacity is likely to exit the market, thereby providing a floor for prices. Nevertheless, amid slowing demand growth and continued supply expansion, BHP and its peers are poised to face a challenging period ahead.
