China will be the lone major economy to grow this year, while developed economies will commence a slow recovery in 2021 without any likelihood of returning to pre-pandemic conditions before 2023, Anglo-Australian mining giant BHP said on Tuesday.
The diversified miner’s forecast, which was delivered during its full-year earnings report, indicates it thinks China is likely to shoulder the bulk of global growth in the next several years.
“While the outlook for 2021 remains uncertain, within the scenarios that we consider, our base case has the world economy rebounding solidly during the year,” BHP said in its outlook.
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“There will, however, be considerable variation at the country level. Even with this rebound, our base case is for the world economy to be six per cent smaller than it would otherwise have been in the 2021 calendar year.
We expect that China and the [members of the Organisation for Economic Cooperation and Development] will return to their pre-Covid-19 trend growth rates from around 2023
“We expect that China and the [members of the Organisation for Economic Cooperation and Development] will return to their pre-Covid-19 trend growth rates from around 2023. Developing economies outside East Asia may take longer.”
The downbeat predictions cast a shadow over global demand for commodities in the near future, including iron ore and coal. The company narrowly missed its full-year profit target after lower oil and coal earnings and higher one-off costs, including expenses linked to its pandemic response.
“[Global] recovery prospects and speed may prove very uneven, varying considerably by country, thereby affecting demand for our commodities,” BHP chief executive Mike Henry said during an online presentation.
“Coupled with the potential for ongoing impacts on the supply side, the price outlook for our commodities is uncertain.”
For the rest of the year, a sharp increase in Chinese steel production to power its infrastructure and housing investment push would offset most of the steep decline in production in the rest of the world, providing a reprieve to iron ore miners, the company said.
BHP and Australian iron ore miners Rio Tinto and Fortescue Metals Group have posted record shipments of iron ore in the first six months of this year, with Brazilian counterpart Vale also catching up on production and supply after disastrous results last year caused by its Brumadinho tailings dam collapse.
But BHP is expecting the good times to slow in the second half of 2020, as iron ore demand wanes amid a levelling off in Chinese crude steel production.
Even with China pulling out all the stops, global crude steel production this year is expected to decline by about 6 per cent compared to last year. There may be some improvement beyond 2020, with India likely to lead the charge, the company said.
“We anticipate that global steel production will expand slightly faster than population growth in coming decades, with a plateau and then slow decline in China offset by growth in the developing world, led by India,” BHP said.
Coal demand has also weakened considerably, though barring further coronavirus outbreaks there could be some improvement in demand and prices early next year.
While it was unlikely for countries like China and India to shift away from blast furnace steelmaking in the coming decades, prospects for coal demand, especially for the coking coal used in steel production, remain favourable, BHP said.
Volatility in other commodities such as crude oil, copper and nickel caused by the pandemic is expected to ease off if the recovery in the global economy maintains its momentum.
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