• Slump in raw materials prices more dramatic than anticipated
  • Weaker global growth, stalled free trade depressing prices

The extent of the commodities rout that’s pushed raw material prices to 16-year-lows is more severe than anticipated and isn’t chiefly the fault of weaker growth in China, according to the head of the world’s largest mining company.

Some price declines “have been a lot more dramatic than probably we thought they would be at the start of the year,” BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie told Australian Broadcasting Corp. radio in an interview broadcast Friday. “I would say it’s wrong to see a prolonged period of lower prices as entirely a product of China moving more into a services-based economy.”

Tumbling oil prices as the Organization of Petroleum Exporting Countries has maintained output and the failure of developed nations to sufficiently promote free trade are hampering global growth and weighing on commodities prices, according to Mackenzie. “Continued downgrades to growth projections for the world are as much driven by that, in fact more driven by that, than what’s happening in China,” he said.

IMF Forecast

The International Monetary Fund in October lowered its 2016 global gross domestic product forecast to 3.6 percent from 3.8 percent and trimmed its forecast for this year. Even those projections may still be too optimistic, according to A.P. Moeller-Maersk., owner of the world’s biggest shipping line, which said last month that it’s less confident than many forecasters on the outlook in developing nations and in Europe.

Weaker growth and faltering demand, particularly in China, has sent the Bloomberg Commodity Index of returns on 22 raw materials to the lowest since 1999, as it heads for its largest annual decline since 2008. It’s squeezing the biggest mining companies, forcing Anglo American Plc to downsize operations to stay afloat and Glencore Plc on Thursday outlined proposals to cut debt further than previously planned and to sell more assets.

“I’m very disappointed in many ways that through several G-20 meetings the developed nations have struggled to re-energize multilateralism, and that has prevented a growth in free trade and, I believe, economic growth,” Mackenzie said. “All of that is affecting our prices and our outlooks, and we have to clearly run our business in a way that reflects that.”

Remain Depressed

Iron ore, BHP’s top earner, has plunged about 46 percent this year, while crude oil is trading near levels last seen during the global financial crisis. BHP’s petroleum division is its second-largest earning unit and accounted for 32 percent of underling earnings in the year to July, according to data compiled by Bloomberg. Iron ore accounted for about 39 percent.

Commodity prices are likely to remain depressed as the global economy slows and on the oversupply of metals to oil, Russ Koesterich, global chief investment strategist at BlackRock Inc., world’s largest money manager, said in a Bloomberg TV interview last month. A strengthening dollar as the Federal Reserve prepares to raise U.S. interest rates is adding a headwind to prices, he said.

While low prices are curbing profits for miners -- and outpacing efforts to cut costs and win productivity gains -- the commodities rout may help stimulate demand in the longer term, according to Mackenzie.

“It’s certainly not all bad news for the world, even though it gives us some short term challenges at BHP,” he said in the radio interview. “Low commodity prices on the whole will be good for economic growth around the world, and ultimately that will stimulate more demand for us.”

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