China’s latest property slump has intensified concerns about demand for iron ore, Australia’s largest and most lucrative export, which added $41 billion to federal government taxes last year and underpinned Treasurer Jim Chalmers’ $4.2 billion budget surplus.

BHP said it faced “two key uncertainties” over the next six months - how effective China’s stimulus would be in reviving its real estate sector, and the “breadth, timing and severity” of any mandated steel production cuts by Beijing.

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On average, China is producing a billion tonnes of steel a year, and authorities in the Asian powerhouse may impose restrictions within months to keep production levels on target and avoid oversupply. About 35 per cent of the country’s steel output is gobbled up by housing, but new home starts have slumped dramatically.

Henry said he expected any mandated steel cuts to quickly eat into Chinese steelmakers’ iron ore inventories, which “aren’t at a particularly high level.”

The company estimates “real-time cost support” will keep iron ore prices between $US80 and $US100 a tonne. “It will come back to how sharp is the pullback in demand,” Henry said.

Iron ore peaked above $US210 a tonne in 2021, before falling back to around $US109 this week. The average prices fetched by BHP’s iron ore were 18 per cent lower than the previous year, copper prices were down 12 per cent, coking coal prices fell 22 per cent, while thermal coal rose 9 per cent and nickel was up by 3 per cent.

Analysts with investment bank RBC Capital Markets, who track BHP’s performance, said it remained in a “robust position.” They said the miner had sizeable medium-term growth options, including from its Jansen potash operations in Canada, potentially higher incremental iron ore volumes, and from copper in South Australia and its Escondida mine in Chile.

The $217 billion company’s shares traded lower over midday, down by 1.5 per cent to $42.82 in the early afternoon.

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