BHP Group Ltd (ASX: BHP) faced renewed pressure on its copper outlook on Thursday, with shares closing at A$59.14, down 2.34% or A$1.42. Despite the decline, the stock remained 4.0% higher than its July 9 close, indicating that the market is adjusting expectations while preserving recent gains.
The company's FY27 copper guidance midpoints point to a significant 11.7% drop in production compared to FY26 levels. This reduction is heavily concentrated at the Escondida mine in Chile, which accounts for 92.7% of the projected deficit. Escondida's copper output is expected to fall to 1,050 thousand tonnes from 1,261.2 thousand tonnes, a 16.7% decline.
The primary driver of this decline is ore quality. BHP forecasts Escondida's concentrator feed grade to average around 0.70% in FY27, a drop of approximately 22% from the 0.90% recorded in FY26. This grade deterioration is a critical factor as it directly impacts the volume of copper produced.
In contrast, iron ore continues to be a strong performer. Total iron ore production reached an all-time high of 264.7 million tonnes, with Western Australian operations (100% basis) hitting 291.2 million tonnes. Realized prices for iron ore also increased by 3%. BHP has approved a US$900 million investment in the Ministers North iron ore project, which is expected to deliver around 20 million tonnes per year once fully ramped up, with initial production targeted for fiscal year 2029.
Labor negotiations at Port Hedland, a key iron ore export hub, are set to continue on July 21 after electrical workers voted overwhelmingly in favor of expanded strike actions. On Thursday, hundreds of workers conducted an eight-hour strike, and 97.5% of high-voltage employees voted for stoppages that could last up to 24 hours. The port processes approximately A$80 million worth of BHP ore daily, making any disruption significant. BHP has stated that contingency measures are in place to ensure safety and minimize operational impact.
The copper market context is also important. BHP achieved a 35% increase in its realized copper price to US$5.74 per pound in FY26, which helped offset the volume declines. CEO Brandon Craig noted that the group had produced around 2 million tonnes of copper for a second consecutive year. However, the FY27 guidance suggests that without sustained high prices, the volume decline could pressure earnings.
Looking ahead, BHP expects to confirm final figures on August 18, with preliminary net debt estimated at approximately US$9 billion. The company also anticipates a US$2.3 billion impairment charge related to the Jansen potash project. Key risks include extended port shutdowns due to labor action, softer copper prices, and further declines in ore grade. Additionally, production at the Carrapateena mine may be impacted for up to eight weeks following a conveyor breakdown.
The upcoming labor negotiations on July 21 will be a critical test for BHP's iron ore operations, which have provided a stable counterbalance to copper's challenges. Investors will closely monitor shipping levels and any signs of escalation in industrial action. The company's full-year results on August 18 will provide further clarity on its financial position and outlook.
