BHP to pay record dividend, despite profit slide; commodities drive ASX higher

China’s strong demand for iron ore has helped BHP increase earnings over the first half of the financial year, while global share markets rallied overnight on hopes that pending US coronavirus relief and the rollout of COVID-19 vaccines could stem the pandemic.

Record production of iron ore in Western Australia and copper extraction from its Escondida mine in Chile, combined with higher prices for both commodities, saw net profit before write-downs rise 16 per cent to $US6.04 billion ($7.76 billion) for the six months to the end of December from $5.19 billion for the same time in 2019.

Although that was lower than the $US6.33 billion expected by analysts.

However, investors will get a record interim dividend of $US1.01 a share, up from $US0.65 for the same period last year.

The dividend news saw BHP shares jump 2.1 per cent to $46.69 just after the ASX opened, although they have since retreated and were underperforming rival Rio Tinto’s 3 per cent gain by 10:20am AEDT.

China’s economy has bounced back from the shutdown caused by the coronavirus pandemic a year ago and the Australian mining giant said it expected strong demand from China to continue in 2021 along with a recovery in the rest of the world’s global crude steel production.

BHP’s net profit fell by one fifth from $US4.9 billion a year ago to nearly $US3.9 billion ($5.01 billion) for the six months to end of December after one-off write-downs of $US2.2 billion, mainly from its coal mines in New South Wales, its part-owned Cerrejon open cut coal mine in Columbia and tax losses.

The big miner is trying to sell its coal mines in the New South Wales Hunter Valley and Queensland, and its stake in the Cerrejon mine, which has been beset by allegations of pollution and human rights abuses.

BHP’s chief executive Mike Henry said the company had delivered a strong set of results for the first half of the 2021 financial year.

“Our continued delivery of reliable operational performance during the half supported record production at Western Australia Iron Ore and record concentrator throughput at Escondida,” he said.

Mr Henry told journalists on a conference call that the diplomatic row between Australia and China affected earnings at its local coal mines.

He said while he was “fundamentally positive” about the outlook, he was worried about the impact of the trade tensions and COVID-19, but was hopeful about the vaccine rollout.

Mr Henry said business relationship with Chinese customers remained “very positive”, but BHP assumed the ban on Australian coal imports at Chinese ports will continue for some time.

NAB loan deferrals fall dramatically

The National Australia Bank said its earnings for the first quarter of the financial year were little changed.

Unaudited first quarter cash earnings came in at $1.65 billion, up 1 per cent from the same time a year ago.

Net profit for the quarter was $1.7 billion.

However, the profit margin between interest paid by the bank and the income from interest slipped over the quarter due to record low interest rates.

NAB said the bulk of customers who deferred their loans because of the coronavirus pandemic have resumed making repayments, with the value of deferred loans at $2 billion down from a peak of $38 billion.

The value of business loans being deferred fell from $19 to $1 billion.

The bank said that most customers exiting deferrals (around 90 per cent of the value of the loans) have resumed making repayments, “but a small cohort are requiring further assistance”.

NAB shares were up 2 per cent at $25.79 in early trade, in line with gains for ANZ and Westpac and outperforming a declining CBA.

ASX opens higher, Australian dollar gains

The Australian share market has opened higher, driven by gains for the mining sector and three of the four major banks.

At 10:17am AEDT, the ASX 200 index was 0.5 per cent higher at 6,903.

The Australian dollar was trading 0.4 per cent higher, at around 77.82 US cents.

Wall Street takes a break

Wall Street was closed overnight for the President’s Day holiday.

Millions of Americans travelled over the weekend despite warnings from health experts to avoid flights.

Figures from the Transportation Security Administration showed more than four million people passed through airport security checkpoints between Thursday and Sunday.

Chinese markets were closed for the Chinese New Year holidays, but other Asian markets gained with the ASX 200 putting on 0.9 to 6,867.

The Nikkei 225 in Japan gained 1.9 per cent to surpass 30,000 to a three-decade high.

European shares jump on higher commodity prices

Global shares rose for the eleventh day in a row on optimism about the rollout of coronavirus vaccines and new US stimulus, while tensions in the Middle East drove oil to a 13-month high.

European shares rallied overnight on higher oil and copper prices to the highest in nearly one year for the pan-European STOXX 600, which gained 1.3 per cent.

That is despite economists’ estimates that the European economy is in a double-dip recession.

Other data showed industrial production in the Eurozone contracted more than expected in December.

However, analysts from ING Bank said new orders for manufacturing continued to grow strongly.

In London, the FTSE 100 increased 2.5 per cent to 6,756 boosted by big miners like Rio Tinto (+4.2pc), BHP (+5.2pc), and Anglo American (+4.9pc) and oil giant BP, which jumped 6.5 per cent.

Pharmaceutical firm, AstraZeneca, whose Covid-19 vaccine is being rolled out globally, fell 0.7 per cent.

In Germany, the DAX was up 0.4 to 14,110 and the CA 40 in France rose 1.5 per cent to 5,786.

E-mini futures for the S&P 500 were also higher, up 0.5 per cent.

Later in the week, all eyes will be on the release of minutes from the US Federal Reserve’s January meeting — where policymakers decided to leave rates unchanged — for hints about the likely direction of monetary policy.

Investors are also focusing on next week’s profit results from hotels, cruise lines and other businesses that have been hard-hit by COVID-19 for indications about which companies could be the first to bounce back when the pandemic recedes.

Manufacturing data for this month will be released in the US and other major economies later this week.

Oil surges on Middle East tensions

Oil joined equity markets in pushing higher, reaching its highest level since January 2020 on hopes US stimulus would boost the economy, and after a Saudi-led coalition fighting in Yemen said it intercepted an explosive-laden drone fired by the Iran-aligned Houthi rebels.

Brent crude rose 1.3 percent to $US63.25 a barrel and West Texas crude put on 0.6 per cent to $US60.02.

With investors turning to riskier assets, safe haven gold fell 0.3 per cent to $1818.51.