The outlook for commodities is compelling, says BHP
Recent times have seen greater uncertainty and volatility in markets and geopolitics, and growing expectations on the part of shareholders, communities and broader society. In addition, there are increasing technical and financial challenges in finding and developing the fresh supply required in some commodities.
Successful companies will be those with a clear strategy and sense of purpose, who are exceptional operators and allocators of capital, are in tune with the changing world around them and who focus on bringing this all together to create long-term value for all their stakeholders. BHP has built the organisational capability, relationships and balance sheet strength to allow us to thrive in this environment.
Government stimulus and pro-growth agendas, which are expected to remain in place for an extended period, are anticipated to lead to robust growth, a lift in inflation and solid demand for mineral resources and oil and gas.
This is occurring at a time when mining industry’s capital discipline and decline in exploration success over a number of years means there are fewer high quality growth projects in the industry pipeline to meet this demand.
The drive to more rapidly decarbonise the globe may also accelerate demand for many of the products BHP produces. A growing number of governments are committing to tackling climate change with greater ambition and are cooperating to do so.
A transition to a world where warming is limited to no more than 1.5 degrees above pre-industrial levels is positive for BHP and would allow BHP to create significant value. In a Paris-aligned scenario, BHP expects a more than doubling of the amount of primary copper and a quadrupling of the amount of primary nickel demand over the next 30 years, as was produced over the last 30.
Demand for steel will almost double on this basis, and potash will be vital for more efficient agricultural practices. And as the shift to cleaner energy sources occurs, the world will still need oil and gas to power mobility and everyday life on its pathway to decarbonisation.
The world is going to need more supply of some commodities in order to continue to grow and to make the transition to cleaner energy. The level of global effort, innovation and coordination to limit warming to 1.5 degrees is massive.
However, the commitment and intention for the future is becoming clearer. BHP for over 130 years has been reliably providing its customers with high quality supply of the commodities they need and for the world to grow.
There is though an obvious tension between the world’s need for more resources and the need to make the world more sustainable: both for people and for the environment. It is essential that both are achieved.
Growing demand must be met ever more sustainably. This requires alignment between resources companies like BHP, investors and society on how best to navigate this tension. Better alignment will enable the transition to be achieved more sustainably, quickly and cost effectively. Conversely, a lack of alignment will result in poorer sustainability outcomes, and slower and more costly progress on the energy transition.