Strategic Succession & Shifting Steel Scenarios

According to an opinion piece from IEEFA analyst, as BHP prepares to select its next CEO following Rio Tinto’s recent leadership announcement, industry observers argue the company risks falling further behind in steel decarbonisation. Mike Henry’s successor inherits a complex landscape shaped by shrinking Chinese steel demand, growing climate scrutiny & transformative technologies. BHP’s ongoing reliance on metallurgical coal & blast furnace iron ore contrasts starkly along peers investing in cleaner alternatives.

Peerless Peers Pursue Progressive Paths

Rio Tinto has begun realigning towards the energy transition by boosting higher-grade iron ore production that enables steelmakers to cut emissions. It produces high-grade ore in Canada & plans major volumes from Guinea’s Simandou project. Rio has also publicly backed reintroducing carbon pricing in Australia. In contrast, BHP clings to Pilbara iron ore suited mainly for carbon-intensive blast furnaces, while remaining Australia’s largest exporter of metallurgical coal.

Carbon Capture Conundrums & Corporate Continuity

BHP remains committed to carbon capture & storage, despite mounting evidence questioning its efficacy. Geraldine Slattery, BHP Australia president & potential CEO candidate, recently said, “The biggest reduction in carbon emissions from steelmaking over the next two decades will not come from reinventing iron ore processing in Australia, but rather from advances in China’s blast furnaces – which we expect to run for at least 20-30 years.” Yet CCS’s dismal track record continues: ArcelorMittal may shutter its “flagship” Belgian carbon capture plant after only two years, capturing less than 2% of emissions.

Direct-Reduced Iron Dominates Decarbonisation Discourse

While CCS languishes, global steelmakers increasingly turn to direct-reduced iron technology, which doesn’t burn coal. New DRI projects amount to around 100 metric tons per annum of announced capacity, dwarfing the mere 1 metric ton pipeline for commercial-scale CCS in coal-based steel. BHP has begun trials of using Pilbara iron ore in DRI processes along China Baowu & joined the NeoSmelt consortium to develop DRI-compatible technology for lower-grade ore.

Capital Commitments & Coal Conundrums

Despite these efforts, BHP’s disclosed capital allocation for steel decarbonisation is a mere $75 million across FY2025–29 — insufficient against its massive Scope 3 emissions of 377 million metric tons in FY2024. The Australasian Centre for Corporate Responsibility & IEEFA warn BHP may be underestimating how quickly met coal demand will decline, driven by technological advances & falling steel demand from China. S&P Global projects Australian met coal exports will slide by 2035, while India’s rising imports won’t fully offset falling demand from Japan, Korea & China.

Methane Matters & Managed Mine Migration

Beyond carbon, BHP’s met coal mines face another emissions hurdle: methane, a potent greenhouse gas increasingly targeted by regulators. Experts argue BHP should emulate its phased closure of the Mt Arthur thermal coal mine & responsibly wind down met coal capacity, rather than pursuing expansions like at Peak Downs, which is proposed to run well into the next century. Continuing business-as-usual risks exposing the company to stranded assets & policy backlash.

Transformative To-Do List & Tactical Takeovers

IEEFA outlines clear steps for BHP’s next CEO: stop expanding or selling off coal assets, end support for failing CCS technologies, & ramp up capital towards proven decarbonisation strategies like DRI. In parallel, BHP may revisit its recent takeover bid for Anglo American. A fresh approach could focus not only on copper but also Anglo’s high-grade iron ore mines, potentially giving BHP the cleaner feedstock its rivals already pursue.

Key Takeaways

• BHP risks falling behind peers by relying heavily on metallurgical coal & blast furnace iron ore while underinvesting in steel decarbonisation.

• Carbon capture & storage shows poor results in steel; direct-reduced iron & high-grade ore are gaining traction globally.

• IEEFA recommends BHP’s next CEO increase low-carbon technology investment, phase down coal mines & drop CCS support.