Kloppers Sees Long-Term Price Decline for BHP’s Commodities

BHP Billiton Ltd CEO Marius Kloppers
Marius Kloppers, chief executive officer of BHP Billiton Ltd., poses for a photograph during a media event in London, U.K., on Wednesday, Aug. 22, 2012.. Photographer: Simon Dawson/Bloomberg

BHP Billiton Ltd., the world’s biggest mining company, expects “long-term” price declines for its commodities as slower economic expansion in China weighs on demand, Chief Executive Officer Marius Kloppers said.

“We go through a pretty rigorous process to pick those long-term prices,” Kloppers told the Inside Business program on the Australian Broadcasting Corp. “They are, by and large, lower. Some products are going to be more attractive than others.”

BHP last week put on hold approvals for about $68 billion of projects, including the Olympic Dam expansion in South Australia after second-half profit slumped. Kloppers said on yesterday’s program he’s seeking to control costs and won’t allocate new capital to industries such as aluminum and nickel as Melbourne-based BHP narrows its exploration focus.

Australia’s economy has been bolstered in recent years by the biggest resources bonanza since a gold rush in the 1850s on Chinese-led demand for iron ore, coal and natural gas. Mining investment will peak within two years, Reserve Bank of Australia Governor Glenn Stevens said Aug. 24 in semiannual testimony at parliament in Canberra, a day after Resources Minister Martin Ferguson said the boom was over.

BHP, which this month wrote down the value of Western Australia nickel operations and U.S. shale gas assets by $3.3 billion, is now only exploring for oil, gas and copper, Kloppers said on the program.

Along with coal and iron ore, those five products are the primary profit drivers at BHP, he said. Potash, a form of potassium used to strengthen roots and help plants resist drought, may join that group as BHP develops its Canadian projects, he said.

Falling Stock

Shares of BHP have fallen 3.9 percent this year, trailing the 7.2 percent gain by Australia’s benchmark S&P/ASX 200 index.

Prices will decline in the long term “across the product suite,” Kloppers said. “That is what we have assumed in our planning processes for the last couple of years and we see no reason to change that.”

As China’s economic growth slows, demand for BHP’s products will rise at a slower pace, Kloppers said.

China, the world’s second-largest economy, expanded 7.6 percent in the second quarter, the slowest pace in three years. Brazil’s Vale SA, the biggest iron-ore producer, said this month that China’s “golden years” are gone.

Australian Treasurer Wayne Swan said prices are only part of the country’s resources bonanza and declines don’t signal the end of the boom.

Three Booms

“The mining boom is perhaps better understood as a series of booms - a boom in prices, a boom in investment and a boom in exports,” Swan said in his weekly economic note yesterday. “While the price boom has passed its peak, the investment boom still has some way to run. As the investment phase eventually winds down, the mining export boom should be ramping up.”

Kloppers said there are still “attractive opportunities” for BHP and the Australian company plans to increase capital expenditure this year compared with last year.

BHP should be able to sell its commodities in greater quantities even as prices fall, he said.

Volumes across the group should increase about 10 percent in each of the next two years, he told the program. BHP plans to expand the capacity of its Queensland coal business 50 percent in the next two years and the output of the Escondida copper mine, the world’s largest, by the same amount, he said.

BHP quit titanium minerals in February after agreeing to sell its stake in Richards Bay Minerals to Rio Tinto Group. Kloppers said in February that BHP was “inching closer” to a similar decision on the diamond industry.

“We will only exit if we get value for the assets,” he said on yesterday’s Inside Business program. “What we’ve done up until now is just to say, ‘We will not spend new capital on those projects and that is pretty much the case for aluminum. It is also the case for nickel.”

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