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BHP Expects China’s Growth to Slow to 7%-8% for Next Decade

BHP Billiton CEO Marius Kloppers
Marius Kloppers, chief executive officer of BHP Billiton Ltd. Photographer: Patrick Hamilton/Bloomberg

BHP Billiton Ltd., the world’s largest mining company, expects China’s growth to decline to about 7 percent to 8 percent this year and stay at this level for the next decade as the nation becomes a consumer-led economy.

“While this is a lower level than China’s annual growth of around 10 percent over the past decade, clearly a significant opportunity remains,” Marius Kloppers, chief executive officer of Melbourne-based BHP, said today in notes for a speech in Brisbane. A destocking cycle in China that has weighed on prices, including for iron ore, has run its course, he also said.

Growth in China, the largest metals consumer and BHP’s biggest customer, cooled to 7.6 percent in the three months to June 30, the slowest pace in three years. Kloppers predicts China’s future needs will include more consumer goods such as kitchen appliances and automobiles as the economy changes.

Iron ore, BHP’s largest contributor to revenue, has recovered 30 percent since prices slumped to a near three-year low last month. The rebound comes after China in September announced stimulus spending on new roads and subway stations.

“The destocking has run its course,” giving some support to stabilize prices, Kloppers told reporters in Brisbane. Meanwhile, China’s stimulus spending plan has so far not had a noticeable effect on market fundamentals, he added.

Project Spending

BHP today reported iron ore output of 39.77 million metric tons for the three months to Sept. 30, little changed from a year ago and meeting analyst expectations. The company is spending about $23 billion on 20 major projects, including iron ore, as it expects China’s growth, albeit at slower levels, to drive demand.

The global iron ore market will grow 650 million tons during the current decade, slower than the 800 million tons during the previous 10 years, “but still a very substantial opportunity,” Kloppers said in the speech notes.

“The progressive transition into a consumption-based economy implies increased demand for commodities other than steel, such as copper, energy, aluminum, and so on,” he said. “As the middle class continues to grow, better diets will also imply a higher demand for commodities such as potash.”

China’s economy probably slowed further to 7.4 percent in the September quarter, the median estimate of 43 analysts in a Bloomberg survey shows before data due in Beijing tomorrow. Mining companies including BHP and Rio Tinto Group, the third-biggest, are curbing spending plans as metal demand wanes.

With the resources industry boosting supply in response to rising demand from China over the past decade, the “supply shortage has largely been filled,” said Kloppers. “What we are now witnessing is the rebalancing of supply and demand to meet increased demand levels.”

Australia, the biggest exporter of iron ore and coal, needs to address falling productivity in mining, he said. The nation is host to 52 percent of the company’s long-term assets, according to data compiled by Bloomberg.

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