---
endpoint: analytics
pattern: Materials
status: done
latency_ms: 168240
conversation_id: 3fa186ec-b2e5-4e40-9da6-87af64229da9
citations: 4
created: 2026-05-31 19:54:02Z
---

# What are the key risks to BHP’s growth trajectory?

# Key Risks to BHP's Growth Trajectory

BHP enters FY26 with record copper production (>2.0 Mt, up 8% YoY), a record iron ore year at WAIO (290 Mt on a 100% basis), and EBITDA margins of 58% — but its forward growth trajectory carries a stacked set of commodity, geopolitical, project-execution, balance-sheet, and ESG/legal risks. The framework below synthesizes the formal downside-risk list from CLSA's most recent BHP coverage, BHP's own disclosures, and current macro context.

---

## 1. Commodity Price Exposure — Iron Ore, Copper, Met-Coal

The single largest swing factor for BHP's earnings and valuation is commodity prices. CLSA explicitly cites "**changes in commodity prices, especially iron ore, copper, and met-coal**" as the #1 downside risk to BHP's earnings outlook and valuation [1]. BHP's "exposure to global economic fluctuations and commodity price volatility remain inherent risks" even after accounting for portfolio diversification [2].

- **Met coal is structurally weakest.** CLSA reports met coal "faces continued headwinds from market in-balances" — supply has rebounded strongly, the coking-coal market is loose, inventory is at high levels, and price volatility is expected [3][4]. This is a direct hit to BMA, which already required upward revisions to FY25 unit cost guidance.
- **Iron-ore price sensitivity** is the largest single mover of group EBITDA — historically each US$1/t move on iron ore moves Underlying EBITDA by ~US$227 million.
- **Copper as the new EBITDA engine creates concentration risk.** Copper now contributes 51% of group Underlying EBITDA (vs. 39% a year earlier), so any copper-cycle reversal hits a structurally larger share of the P&L than it would have in prior cycles.

---

## 2. China Demand, Steel Plateau, and Property Sector

BHP's iron-ore franchise is hostage to China steel demand:

- BHP itself acknowledges that "**China's demand for iron ore is expected to be lower than it is today as it moves beyond the crude steel production plateau and as the ratio of scrap-based steelmaking rises**" — partly offset, but only partly, by developing-Asia demand [9].
- CLSA flags "**global iron ore demand and China's economic growth**" as a top-5 downside risk [1].
- China is planning capacity cuts of roughly **100mt of steel production capacity** to be announced and implemented across 2025–26, with net production capacity expected to fall ~20–25% by 2035 (from ~1.3bn to ~800mt of output) [4]. While capacity discipline can support near-term steel margins (a positive for iron-ore prices), the longer-dated trajectory is a structural demand drag.
- China's property-sector dislocation remains a persistent overhang on steel-intensive end demand, with stimulus efficacy still the key swing factor.

---

## 3. Geopolitical, Tariff, and "Fragmenting Trading System" Risk

BHP's CEO Mike Henry has explicitly flagged "**slower economic growth and a fragmenting trading system**" as potential headwinds, partially mitigated by Chinese and US stimulus [6]. CLSA's House view reinforces this:

- The "**aggressive increase in tariffs**" in the US is expected to keep inflation elevated and act as a growth shock to non-US economies, pulling commodity prices lower on weaker demand. Geopolitical flashpoints (e.g., Israel/Iran) add discrete oil-price risks [5].
- USD/CNY pressure, additional US tariff layers on Chinese goods, and policy-driven export volatility all feed into BHP's realised prices and AUD/USD translation [3].

---

## 4. Project-Execution Risk — Jansen Potash, Resolution, Vicuña

BHP's growth pipeline is concentrated in a few mega-projects, where capex blowouts and schedule slippage are real risks. CLSA explicitly cites "**potential capex increases and delays for growth projects like Jansen**" as a key downside [1][2].

- **Jansen Stage 1** (the lever for BHP's potash entry) is now 68% complete, with capex now estimated at **US$7.0–7.4 bn** and first production reverted to mid-CY27 (i.e., already slipped from the prior earlier target) [6].
- **Jansen Stage 2** is being deferred — BHP is "considering the extension of first production from Jansen Stage 2 to FY31" given the prospect of additional potash supply coming to market [6]. This signals weaker near-term potash economics and pushes payback further out.
- **Resolution and Vicuña** are flagged in BHP's growth narrative but remain unsanctioned and carry permitting, dilution, and country-risk overhangs (CLSA's valuation explicitly applies a discount to unsanctioned projects like Resolution).

---

## 5. Operating Risks — Weather, Safety, Reserve Revisions

CLSA lists "**operating risks, including reserve revisions, natural disasters, opex, and stay-in-business capex**" among BHP's downside risks [1]. These have already manifested:

- **Weather impacts** — Tropical Cyclone Zelia and Tropical Storm Sean in Q3 FY25 hit WAIO production, and BMA cost guidance was revised upward 11% at midpoint vs. prior on more severe weather [6].
- **Reserve revisions and stay-in-business capex** are recurring drags as Tier-1 orebodies age (Escondida's life extension at Los Colorados is now critical to maintaining 900–1,000kt/yr copper output through FY31).

---

## 6. Capital-Structure & Refinancing Risk

CLSA explicitly cites "**refinancing risk**" as a downside risk to BHP's earnings outlook and valuation [1]. The balance sheet has been stretching:

- **Net debt rose to US$14.7 bn at HY26**, up from US$12.9 bn at FY25 and US$11.8 bn at HY25; gearing climbed to **20.9% (vs. 19.2% a year earlier)** [7]. With ~US$11 bn group capex planned for both FY26 and FY27, free-cash-flow generation has to absorb both Jansen build-out and Capital Allocation Framework returns.
- **Currency/financial-market risk** — CLSA flags "**financial market shifts, particularly the AUD/USD exchange rate and capital costs**" as a top downside [1].

---

## 7. Samarco Tail Liability and Asset Impairments

BHP's risk register includes major legacy and write-down risk:

- **Samarco dam failure** — BHP took a US$3.2 bn charge in HY24 related to the Samarco dam failure, with the matter still flagged as a Note 9 "Significant event" in current half-year disclosures [8]. Brazilian litigation and reparation obligations remain an open tail.
- **Western Australia Nickel impairment** — BHP recognised a US$2.5 bn impairment of WA Nickel in HY24 and has effectively placed nickel operations into temporary suspension [8]. Any structural ramp of Indonesian nickel supply keeps this asset value-impaired.

---

## 8. Regulatory, Tax, and Royalty Risk

CLSA flags "**regulatory risks, including new taxes and royalties in host jurisdictions**" [1]. Concrete exposures:

- BHP's HY26 effective tax rate was 36.6% (vs. 36.4% prior), with FY26 guidance of 36–40% — already structurally higher than the 30% Australian corporate rate due to a 43% all-in effective rate when royalties are included [7].
- Australian commonwealth and state royalty changes, Chilean copper royalty/taxation regime, and Brazilian Samarco-related legislation are all live regulatory exposures.

---

## 9. Cost Inflation & Productivity

BHP itself flags a "**structurally higher cost environment**" requiring continued productivity and cost discipline. Group inflation was running 6.3% across operating jurisdictions in HY24 disclosure, weighing on labour and parts [8]. While Escondida and Copper SA delivered 16% and 53% unit-cost reductions respectively in HY26, sustaining margin against an FX/inflation drag is an ongoing battle — particularly at BMA where unit costs were revised higher.

---

## 10. ESG / Decarbonization Risk

BHP's growth plan (FY27–FY35 production CAGR of 3–4%) is layered on top of a Scope 1 + 2 emissions target where heavy reliance on diesel-displacement and trolley-assist haul-truck technology that is "**still under development**" creates pathway risk. Failure to scale these (or rising carbon pricing under Australia's Safeguard Mechanism) would either drive cost pressure or trigger Scope 1 abatement shortfalls.

---

## Summary Risk Matrix

| Risk Category | Severity | Specific Driver | Most Recent Signal |
|---|---|---|---|
| Commodity prices (Fe ore / Cu / met-coal) | **High** | Cyclical EBITDA leverage | Met coal headwinds; Cu now 51% of EBITDA [1][3] |
| China demand & steel plateau | **High** | Iron-ore secular peak | China 100mt steel capacity cuts [4][9] |
| Tariffs / geopolitics | **Medium-High** | US tariff regime, FX | Fragmenting trade system [5][6] |
| Jansen / project execution | **Medium-High** | Capex blowout, delays | JS1 US$7.0–7.4bn; JS2 deferred to FY31 [1][6] |
| Operating risks (weather, opex) | **Medium** | BMA cost upgrade, cyclones | BMA cost guidance +11% midpoint [1] |
| Refinancing / leverage | **Medium** | US$14.7bn net debt | Gearing 20.9% (vs 19.2%) [7] |
| Samarco / impairments | **Medium** | Tail litigation; nickel | US$3.2bn Samarco + US$2.5bn nickel [8] |
| Regulatory / tax | **Medium** | Royalty/tax regimes | Effective tax 36–40% [7] |
| Cost inflation | **Medium** | Labour, diesel, FX | Structurally higher cost env. [1] |
| ESG / decarbonization | **Low-Medium** | Tech-availability gap | FY30 emissions target subject to tech-scaling |

The most under-priced risks in our view are the (a) **structural decline in Chinese iron-ore demand** post-steel-plateau, against which BHP's offset (developing Asia) is partial and slow, and (b) the **concentration of EBITDA in copper** at a point in the cycle when copper prices are elevated — a single-commodity-driven margin reset would hit harder than in prior cycles when iron ore dominated the mix.

---
**Sources**
[1] BHP - O-PF (A strong 3QFY25 result) — CLSA (17 Apr 2025) — 607956139LinqAlpha.PDF
[2] BHP - O-PF (A solid 3Q result, led by Cu.) — CLSA (17 Apr 2025) — 607956168LinqAlpha.PDF
[3] Asia Pacific China Resources (Steel, IO intact on capacity cuts) — CLSA (3 Mar 2025) — 607952039LinqAlpha.PDF
[4] Asia Pacific China Resources (Steel, IO intact on capacity cuts) — CLSA (3 Mar 2025) — 607952039LinqAlpha.PDF
[5] Global Themes 2025 (Half-time review) — CLSA (29 Jun 2025) — 607960638LinqAlpha.PDF
[6] BHP Group 6-K (FY25 Operational Review & Outlook) — BHP Group Limited
[7] BHP Group 6-K (HY26 Financial Results) — BHP Group Limited
[8] BHP Group Interim Report H1 2024 — BHP Group Limited
[9] BHP Group Form 20-F FY2024 — BHP Group Limited

## Citations

- [6] **2025 6-K BHP Group Limited** · external
- [7] **2026 6-K BHP Group Limited** · external
- [8] **BHP Group Ltd - H1 2024 - Report** · external
- [9] **FY 2024 BHP Group Limited** · external — <https://www.sec.gov/Archives/edgar/data/811809/000119312524210297/d812514d20f.htm>

