Page 38 - Annual Report 2020

1.5.4 Risk management continued

Commodity prices
Risks associated with the prices of commodities, including sustained price shifts relative to the price of extraction.

Why is this important to BHP?
The prices we obtain for our minerals, oil and gas are determined by or linked to prices in world markets, which have historically been and may
continue to be subject to significant volatility.
Threats
Fluctuations in commodity prices can occur in response to a range US$1 per barrel decline in the average oil price would have an estimated
of factors. These include price shifts triggered by global economic impact on FY2020 profit after taxation of US$163 million and
and geopolitical factors, industry demand, increased supply due US$24 million, respectively. For more information on commodity price
to the development of new productive resources or increased impacts, refer to section 1.5.2. Commodity prices can also be affected
production from existing resources, technological change, product by exchange rate fluctuation, which impacts our financial results.
substitution and national tariffs. The effects of the COVID-19 pandemic Long-term price volatility or sustained low prices may adversely affect
have impacted and may continue to have an impact on commodity price
volatility due to rapid demand deterioration from affected customers/ our future profitability. This could result in cost pressure, as we do not
generally have the ability to offset costs through price increases.
countries, supply disruption from key producing regions or logistical In addition, this impact may result in lower than desired credit
constraints impacting supply chains, which may therefore affect our ratings for BHP, restricting our access to debt funding or increasing
financial performance. our financing costs.
We are particularly exposed to price movements in minerals, oil and gas.
For example, a US$1 per tonne decline in the average iron ore price and
Management
Our usual policy is to sell our products at the prevailing market prices. Note 22 ‘Financial risk management’ in section 5 outlines our
We manage our exposures primarily through the diversity of financial risk management strategy, including market, commodity
commodities, markets, geographies and currencies provided by our and currency risk.
relatively broad portfolio of commodities. However, this does not
necessarily insulate us from the effects of price changes.

FY2020 insights
Impacts from the COVID-19 pandemic and other geopolitical and macroeconomic developments (mentioned in the Geopolitics and stakeholder
relations risk factor) are expected to increase commodity price volatility. Volatility in the market will continue to translate into profit variability.

36 BHP Annual Report 2020