BHP (BHP.AX) Stock; Drops After Potash Budget Surge and Ongoing China Iron Ore Negotiations

TLDRs;

• BHP shares fall 2% as higher Jansen potash costs and China iron ore discounts weigh on investors.
• The miner maintains full-year iron ore output guidance but increases copper production forecast.
• China’s declining steel output adds uncertainty to iron ore demand, pressuring realised prices.
• Investors await February results and contract updates for clarity on costs and capital discipline.

BHP Group Ltd (ASX: BHP) shares fell approximately 2% on Tuesday, closing at A$47.78, after the miner raised its projected costs for the Jansen Stage 1 potash project in Canada. The total investment for the project has increased to $8.4 billion, up from the previously estimated $7.0–7.4 billion range.

BHP cited higher construction hours and material costs as key drivers of the revised budget. The company confirmed that Stage 1 is roughly 75% complete, with first production now scheduled for mid-2027.

Brandon Craig, president of BHP Americas, described the Jansen project as a “long-life, low-cost, expandable asset,” integral to BHP’s broader strategy to diversify its earnings beyond traditional iron ore and copper operations. Despite the long-term growth potential, the immediate cost surge has contributed to the stock’s decline.

China Iron Ore Negotiations Create Market Uncertainty

BHP is also navigating pricing pressure from China, where iron ore contract negotiations remain ongoing. The company agreed to reduced prices on certain shipments while finalizing 2026 supply deals with China Mineral Resources Group (CMRG), a state-backed buyer seeking more influence over pricing.

Analysts note that these discounts could limit BHP’s realised revenue even if benchmark iron ore prices remain stable.

BHP Group Limited, BHP.AX

China’s crude steel production fell to 960.81 million metric tons in 2025, the lowest level since 2018. Forecasts for 2026 anticipate further declines, adding to the uncertainty around global iron ore demand and putting pressure on miners like BHP. RBC Capital Markets highlighted that CMRG’s constraints might tighten spot market availability, potentially supporting benchmark prices but widening discounts for the miner.

Strong Core Operations Offset Some Pressure

Despite the challenges, BHP maintained its full-year iron ore guidance at 284–296 million metric tons and raised its copper production forecast to 1.9–2.0 million tons. Chief Executive Mike Henry emphasized strong performance from the company’s core assets, particularly as the wet season approaches in Western Australia.

Henry noted that BHP had delivered “another half of very strong performance,” setting the company up for a quarter that could disrupt shipments and create opportunities to stabilise returns. However, the combination of rising potash costs and iron ore pricing pressures has nonetheless weighed on investor sentiment in the short term.

Market Reactions and Next Steps

The sell-off extended beyond BHP. Iron ore futures in Asia fell 0.87% to $103.75, while peers such as Rio Tinto and Fortescue Metals Group dropped 1.66% and 0.74%, respectively, pulling materials stocks lower. Analysts caution that if China’s negotiations stall or product restrictions tighten, discounts could expand, affecting cash flows even if headline iron ore prices remain steady.

Investors are now eyeing BHP’s upcoming half-year results on February 17 for a clearer picture of realised prices, project costs, and capital management. Traders will also monitor iron ore futures overnight to gauge whether the market views Tuesday’s decline as a short-term adjustment or an early signal of deeper shifts in commodity pricing and cost pressures.

BHP’s immediate outlook is shaped by a delicate balancing act: advancing its growth projects like Jansen potash and expanded copper operations while managing pricing pressures from China and rising construction costs. The combination of these factors will determine how well the miner can navigate the current volatility and maintain its position in the global resources market.

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