The Super Copper Cycle Remains Elusive: BHP Faces Cooling Bullish Sentiment Ahead of Earnings, Analysts Abandon Bullish Outlook

Zhitong Finance APP noted that ahead of BHP Group's (BHP.US) full-year earnings announcement on Tuesday, analysts’ bullish sentiment has cooled, with the number of “buy” recommendations on its Sydney-listed shares dropping to a historic low.

Of the 30 brokerages tracked by Bloomberg, only four have a “buy” rating on the world’s largest mining giant. Institutions including CLSA, Citigroup, and Morgans Financial Ltd. have all abandoned their bullish stances over the past year.

Citigroup has maintained a neutral stance on the stock since at least last October. A team of analysts led by Ephrem Ravi wrote in a June report that this rating is relative to peers, as they believe Glencore stands to benefit more from the copper price rebound.

Last month, following BHP’s release of weaker copper production guidance, market expectations for its earnings softened. The company stated that due to declining ore grades at its South American mines, copper production for the new fiscal year starting in July is expected to fall to a minimum of 1.65 million tonnes.

David Takwell, Chief Investment Officer at ETF Shares, said, “Analysts are concerned that reduced output means BHP may not fully capitalize on these record copper price windfalls.” He added that the stock currently appears overvalued.

Data shows the company’s forward P/E ratio is about 17 times, compared to a five-year average of around 11 times. Since the start of the year, BHP’s share price has risen 35%.

Unable to Fully Seize the “Super Copper Cycle”

Although BHP is benefitting from elevated copper prices and strong iron ore shipments over the past year, with the market expecting its full-year operating revenue to reach $57.8 billion (up about 13% year-on-year), net profit attributable to parent company to hit $12.6 billion (up around 24% year-on-year), and EBITDA to reach $32.4 billion, Wall Street’s bullish enthusiasm for its future prospects has dropped to historic lows.

The collective shift in analyst sentiment reveals the market’s deeper concerns about the mining giant: pressure from lofty valuations, flagship production slowdowns, and capital expenditure overruns.

Firstly, the “dislocation of volume and price” has become a primary factor weakening market confidence. As one of the company’s core profit engines, the copper business was expected to ride the wave of surging global copper prices, but BHP’s production guidance last month poured cold water on the market. Due to declining ore grades at South American mines (especially the Escondida mine), the company expects its new fiscal year copper production to drop to a range of 1.65 million to 1.8 million tonnes. With copper prices repeatedly hitting new highs, reduced production means BHP cannot fully capitalize on the ongoing commodity boom, and may even face cost pressures under constrained capacity.

Secondly, valuation premium has significantly raised the bar for earnings delivery. Data shows BHP’s current forward P/E ratio has risen to about 17 times, well above the five-year historic average of about 11 times—a year-to-date gain of 35%. With valuations fully priced in, market tolerance for errors is extremely low. By contrast, analysts are more optimistic about the flexibility and risk-reward ratio of peers such as Glencore amid the copper price rebound.

In addition, concerns over capital expenditure in emerging businesses have also weighed on statutory profit performance. Although the Western Australia Iron Ore (WAIO) business continues to act as the “anchor” for cash flow with record output, the budget for the second phase of the Jansen potash project in Canada soared from $4.9 billion to $6.9 billion, with commissioning delayed until fiscal 2031. The resulting impairment provision of about $2.3 billion has directly overshadowed the company’s statutory net profit.

Looking ahead to the imminent full-year financial report, the market will focus on three key areas: 1) recovery of ore grades and cost reduction strategies at copper projects in Chile and Argentina; 2) whether abundant cash flow will translate into dividend surprises for investors (an estimated dividend of $1.60 per share); 3) latest management updates regarding M&A expansion and capital allocation. Given capacity bottlenecks and high valuations, if BHP hopes to regain investors’ favor, relying solely on the commodity “tailwind” will no longer suffice—it must also demonstrate robust operational management and cost control capabilities.