Our customers turn the commodities we produce into the products essential for everyday life. The global COVID-19 outbreak has posed significant challenges to businesses on both the supply and demand side of our supply chain.
In this second episode of our resilient supply chain series, Group Sales and Marketing Officer Michiel Hovers explains the steps BHP is taking to support its customers through the pandemic.
If you missed the first episode in the series, you can read it here: procurement.
The global population is expected to hit 10 billion by the year 2050, by which time two out of every three people will live in urban areas.1
Our analysts indicate that this long-term demand for raw materials will increase as countries all over the world grow their economies and build more houses, airports, schools and infrastructure that will improve standards of living.
The COVID-19 pandemic has however disrupted business right along the supply chain, from those that export commodities to those that turn them into the finished products.
We have worked closely with our customers to understand how the pandemic has affected their operations and their own supply chains relevant to our products supplied to them.
Armed with this information, we developed tailor made solutions that enabled the continued flow of our products through the supply chain in this challenging environment.
Copper, iron ore and metallurgical coal
China and India account for more than half of global steel production2 and around half of the world’s copper imports3. They are among the primary destinations for BHP’s copper, iron ore and metallurgical coal.
Our customers based in China and India were also among the first to be impacted by the COVID-19 outbreak.
Daye Nonferrous is a copper smelting business based in Huangshi City in the Hubei province of China, roughly 100 kilometres southeast of Wuhan at the epicentre of the outbreak.
Hubei province came to a standstill as authorities moved to contain the virus, which affected both the transportation of copper concentrates to the smelter and the removal of sulphuric acid, a by-product of the smelting process.
As Daye began closing down their operations to keep its people safe and prepare for the slowdown, it requested for an immediate rescheduling of about 20,000 tonnes copper concentrate that was en route from our Escondida copper mine in Chile. We worked with Daye to fast track its request for support during the lockdown in Hubei province that had frozen supply chains and banking channels.
Mr Wang, Head of Purchasing at Daye Nonferrous, told us BHP’s actions helped the business effectively adapt to the slowdown. “The support from BHP with the shipping schedule provided the flexibility we needed during the COVID-19 outbreak,” he said.
As China moves toward recovery mode, we’re working to organise prompt shipments of copper to help Daye ramp up production towards pre-COVID levels. Meanwhile in India, a nationwide lockdown caused disruptions for our copper customers.
Hindalco Industries Ltd., (Hindalco) a global leader in copper and aluminium, temporarily ceased operations of two of its copper smelters at its Dahej facility in Gujarat. Vessels carrying raw material to Hindalco had been sailing from the originating port in Chile since January, leaving tens of thousands of tonnes of BHP copper concentrate stranded in the waters between Chile and India.
BHP bought the copper concentrate back from Hindalco at market price and diverted it to our customers at alternate destinations.
Mr Jayaraj, Vice President at Hindalco, told us that this helped keep the excess materials out of its supply chain.
“Redirecting this extra supply helped Hindalco avoid excess raw material inventory and unnecessarily blocking capital during these challenging times”, he said.
The COVID-19 outbreak highlighted the need for a digital revolution in the bulk commodity industry.
Strengthening supply chains through innovation
The COVID-19 outbreak also highlighted the need for a digital revolution in the bulk commodity industry because a reliance on physical documentation has slowed down shipment transactions.
Physical copies of Original Bills of Lading (OBL) are currently required to complete bulk commodity transactions. However, getting this documentation to our customers and their banks proved challenging due to international lockdowns and the skeletal workforce of shipping agents and banks.
We’re collaborating with major steel producer China Baowu and other industry participants to trial blockchain technology in the iron ore post-trade transaction process. The cloud-based technology promises to boost efficiency and productivity, improve security and transparency, as well as build resilience across supply chains by reducing the reliance on paperwork.
We also maintained our tradition of working on longer term strategic issues for our customer by completing our first ever iron ore transaction in RMB with China Baowu, in the midst of the crisis.
Commitment to price transparency
Faced with the volatility in markets over the first half of this calendar year, we maintained our commitment to fair, transparent and robust market pricing.
In iron ore, there has been a deliberate focus on increasing our support of price transparency and we continued to undertake spot transactions through platforms such as Global Ore and Corex. Our ratio of reportable spot sales on these platforms in calendar year 2020 doubled in comparison to calendar year 2019. Also in the volatile copper and metallurgical coal markets, we maintained our commitment to spot transactions informing price indices and transparency.
Securing a reliable supply of energy
As a leading gas supplier in domestic markets, including Australia and Trinidad and Tobago, we are committed to delivering reliable energy supplies to our customers.
When our energy customers faced financial challenges, we worked on targeted solutions to stabilise cash flow and developed new gas supply offers to support future business continuity.
This is a marathon, not a sprint
We expect the long-term impacts on downstream markets and disruptions to supply chains will be mitigated by our close partnership with our customers as we work together in this challenging environment.