Chart of the Week: BHP’s growth story faces a reality check
China’s slowing economy could weigh on BHP’s future growth.
Mentioned: BHP Group Ltd (BHP)
This week’s insights come directly from PitchBook data, as we analyse BHP’s revenue exposure, particularly to China. Our equity analyst Jon Mills argues BHP (ASX.BHP) faces headwinds from its largest customer and its evolving economy.
Demand from China drives most commodities
Most commodities markets are driven by demand from China. For example, it accounted for nearly all growth in global demand for copper and iron ore over the past decade.
China has modest and generally poor-quality domestic iron ore reserves but consumes more than 50% of global steel and roughly 75% of traded iron ore. As with steel, China’s large construction and manufacturing sectors and significant infrastructure spending are big drivers of copper demand. China is reliant on imported copper, accounting for less than 10% of the mined supply, but more than half of refined copper demand. China drives demand for nickel and zinc, too, given their primary use in stainless steel and galvanized steel, respectively.
BHP benefited greatly from the China boom over the past two decades. China is BHP’s largest customer, accounting for roughly 60% of sales in fiscal 2025. But we think demand for many commodities is likely to soften as the China boom ends, particularly iron ore, which has disproportionately benefited from the boom in infrastructure and real estate investment.
Lower property and slowing infrastructure investment bearish for iron ore and copper demand
Soft investment in China’s real estate sector is a headwind for gross domestic product, or GDP, growth. Despite increased government support for the property sector, much more needs to be done for it to stabilize. China’s property and infrastructure sectors together drive about 60% of China’s steel demand, according to Rio Tinto. This, in turn, affects demand for iron ore, with China accounting for about 75% of the seaborne trade. JPMorgan estimates that building and construction account for about 30% of the country’s copper use. China’s refined copper demand is more than half the global total. China’s traditional playbook is to boost commodity-intensive infrastructure spending when economic growth slows, as it did in response to Covid-19.
China is following this playbook to try to meet its reduced GDP growth target of 4% to 5% in 2026, from “around 5%” in 2025 and the lowest target since 1991. This has seen a strong increase in infrastructure investment in the first quarter of 2026, up 9% on the same quarter of 2025, though growth slowed in April and May. A combination of poor returns on new infrastructure investment and a central government commitment to more consumption-led growth means infrastructure investment will again trend downward in the coming years.
Optimism over copper demand and prices sees BHP shares overvalued
BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal and thermal coal. It placed its nickel operations on care and maintenance due to low prices in 2024. BHP is also developing its Jansen potash project in Canada. It merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023, and half of the Vicuna copper joint venture in fiscal 2025.
Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remain profitable through the commodity cycle. Much of its operations are close to key Asian markets, particularly the low-cost iron ore business, providing a modest freight cost advantage relative to some producers such as those in Africa and South America.
BHP correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification. Much of its revenue comes from assets in the relatively safe haven of Australia. The development of Jansen in Canada is BHP’s major expansion project, while it is also looking to expand copper production. It is also pursuing modest expansion of its Western Australia Iron Ore operations above 290 million metric tons (100% basis) per year.
The good times during the height of the China boom saw significant capital expenditure, notably on iron ore and onshore US shale gas and oil. Overinvestment in the boom diluted returns to the point where we struggle to justify a moat. As a commodity producer, it lacks pricing power and is a price taker.
Our $44 fair value estimate for no-moat BHP stands. Shares have risen over 30% in 2026 on the rising copper price and after it completed iron ore contract negotiations with China Mineral Resources Group. They now trade 33% above our intrinsic assessment.
