• Developed economies are strengthening, biggest miner says
  • China slowdown has brought moderation in commodities demand

BHP Billiton Ltd. expects a U.S. interest rate rise in the first half next year as stronger developed economies help to offset a slowdown in emerging markets, including China, that’s seen a plunge in commodity prices.

Consumer demand in the U.S. is being supported by strength in the labor market, while corporate investment has shown signs of a recovery, the world’s biggest miner said Wednesday in its annual report. Domestic demand is rising in the Eurozone, except in Greece, while growth in Japan is being supported by stronger business investment.

Prospects for the first increase in U.S. rates since 2006 have spurred a 15 percent rally in the dollar over the past year, adding a further headwind for commodities already burdened by faltering growth in China. A Bloomberg index of 22 raw materials, from copper to crude, plunged to touch a 16-year low last month amid supply gluts and weaker demand growth.

The Federal Reserve is “expected to begin increasing interest rates” in the first half of 2016, BHP said. The central bank last week kept its benchmark interest rate unchanged as Chair Janet Yellen said policy makers needed more time to assess the impact of the slowdown in China and other emerging economies on U.S. growth and inflation.

“A continued slowing in China’s economic growth and demand could result in lower prices for our products and negatively impact our results, including cash flows,” BHP said in the report. Measures including interest rate reductions and boosts to infrastructure spending are likely to support growth in China over the remainder of the year, it said.

BHP last month reported a 52 percent drop in full-year underlying profit on tumbling prices. China, the biggest commodities consumer, accounted for 37 percent of BHP’s revenue in the year to June 30, it said.

The slump in profits saw Chief Executive Officer Andrew Mackenzie’s remuneration, which is linked to performance, fall about 43 percent to $4.6 million in fiscal 2015, BHP said in the annual report.

The company, which flagged a plan Tuesday to sell new hybrid securities to institutional debt investors, will also seek approval from shareholders to alter the mechanism used to fund the payment of matching dividends to shareholders in London and Sydney.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE