BHP Flags Swinging Spending to Energy From Iron Ore

BHP Billiton Ltd. (BHP), the world’s largest mining company, flagged more investment in energy and fertilizer, while scaling down spending on steelmaking raw materials as China’s economy switches gears.

“We probably don’t see the case for quite the scale of investments in growing our iron ore and our metallurgical coal business like we did in the last 10 years,” Chief Executive Officer Andrew Mackenzie told reporters yesterday in Beijing, as he ended a tour to visit customers in Asia. “And more of that will be swung behind consumption related commodities like energy, like food and fertilizers and middle-income metals.”

China, the biggest buyer of metals, is in transition from an infrastructure driven economy to a consumer economy, Mackenzie said. The world’s second-largest economy is projected to grow 7.3 percent this year, which would be the weakest pace since 1990, according to an analysts’ survey in May.

China buys about a fifth of the $20 billion in global potash shipments to enhance crop yields in the world’s most populous nation. The nation will retake the lead over the U.S. in oil demand growth this year as its industries expand, the International Energy Agency said in January.

BHP said last year it was seeking partners for its Jansen potash project in Canada. It may cost $16 billion to build, Citigroup Inc. estimated last year. While focusing on products such as copper and coal, the company sold $3.3 billion of assets including uranium and diamond mines in the past two years, according to data compiled by Bloomberg.

Copper Core

“Copper is core. Coal is core. Oil and gas is core. Potash is core,” Mackenzie said. “We’ve exited diamonds. We’ve exited arguably medium-sized ore bodies which don’t fit with our overall strategy to own the great ore bodies of uranium and copper and to some extent in oil and gas. And we reduced our exposure to liquefied natural gas.”

Iron ore, a key steelmaking ingredient, had its sixth straight monthly decline in May, the longest losing streak on record, with supplies rising from Australia and Brazil just as demand growth in China cools. Prices may average $109 a ton in 2014 and $80 next year, according to Goldman Sachs Group Inc. (GS)

“There’s a bit of overcapacity in the property market, which probably led to temporary softening in the demand growth for steel,” Mackenzie said. “Hopefully there will be renewed growth, particularly growth in the way of making more use of high-quality, low-cost iron ore and metallurgical coal produced by Australia. We are ready for that.”

Urban Development

BHP, based in Melbourne, raised its full-year iron ore output guidance in April to 217 million metric tons, while Rio Tinto Group posted record first-quarter output, swelling supply.

The company sees steel production in China increasing to 1.1 billion metric tons in the next 10 years as urban development drives long-term demand. China produced 779 million tons of steel last year, according to the World Steel Association. China is evolving from being more construction and infrastructure driven to more consumption-driven economy, from steel making to energy, he said.

“And there’s a phase beyond that where they are improving the efficiency of their agriculture as they continue their urbanization, mechanizing their land,” Mackenzie said. “The world generally is having more mouths to feed and they want to be fed better quality of food.”

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net; David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; John Viljoen at jviljoen@bloomberg.net Keith Gosman, Madelene Pearson

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