BHP confident Chinese growth will persist

BHP Billiton chief executive Andrew Mackenzie is confident China’s new economic policies will rebalance the country’s commodity demand, positioning it for sustained long term growth.

Mackenzie said the company is positive enough about growth in its coal, iron ore, copper and petroleum divisions, that the company is able to focus on increasing productivity, SMH reports.

He also highlighted the possibility of a fifth pillar for the company – potash.

"On the whole, I think the (Chinese) economy under the guidance of the new leadership is being re-balanced (with), perhaps, just slightly lower levels of growth that I think will sustain demand for commodities long term," he said.

Meeting with the Chinese Premier Li Keqiang this week, Mackenzie said he "was extremely reassuring about the demand for resources".

BHP has recently followed in mining giant Rio Tinto’s belt tightening foot prints, flagging “substantial” cuts across the company.

The new heads of mining are embarking on a new era of slashing costs, with BHP moving to cut spending by 18 per cent in the 2014 budget. 

Last month Australian Mining reported the miner would reduce capital and exploration expenditure to $US18 billion for the next financial year, down from $US22 billion the previous year. 

But this week Mackenzie announced the company wants to get that down to $US15 billion over the next two to three years.

"But that is not a 'spend up to' number.

"If we don't, because of economic circumstances or project economics … get sufficient, compelling reasons to invest, then we may not even spend to that level."

Mackenzie also commented on the Australian government’s recent mining tax debacle which saw revenues fall well short of initial estimations.

"Higher prices (during the mining boom) have also affected, in my view, how governments have viewed us," he said.

"Some mis-judged the value of their resources and lost out by squeezing project economics."

He added that re-balancing of supply and demand had resulted in more sustainable prices "yet governments and communities still want a larger share of the pie".

With commodity prices coming back, Mackenzie said BHP must "get much sharper on operating and capital productivity to expand margins and increase returns no matter where prices go".

He explained that at BHP a one per cent productivity improvement equates to a $US170 million saving.

Late last month the company cut about 100 jobs across its six Nickel West operations in Western Australia.

BHP today told Australian Mining increased economic pressures and falling commodity prices will result in roles being cut as the company launches head first into its austerity measures.

“Continued global economic uncertainty, local industry cost pressures, depressed commodity prices and a strong Australian dollar continue to place pressure on our Nickel business,” a BHP spokesperson told Australian Mining.

In a recent PwC report titled Mine: A Confidence Crisis, it found that despite Chinese growth slowing, the Asian powerhouse is still consuming about 40 per cent of global metals.

The report explained that a Chinese slow down will come off the back of a bigger base, with annual iron ore import volumes almost tripling since 2005, copper imports almost doubling in value and overall GDP more than doubling.

“Although the growth experienced over the past eight years can be expected to moderate we remain optimistic in our outlook on China. But the industry should not ignore the potential for further fluctuations in real growth rates,” PwC Australia’s energy, utilities and mining leader Jock O’Callaghan said.

 

Image source: Herald Sun.

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