BHP CFO Says China Growth May Slow Toward 6% After Two Years

BHP Billiton Ltd., the world’s biggest mining company, expects annual economic growth in China to moderate toward 6 percent, saying prospects in its largest customer present its main business risk.

“What you have seen over the last couple of years, I don’t expect the double digit growth rates to continue,” Graham Kerr, chief financial officer of the Melbourne-based company, said today at the Bloomberg Australia Economic Summit in Sydney. “Their moderated growth is around the 7 percent to 8 percent mark for the next couple of years, then trending down toward the 6 percent mark.”

China, whose economy grew 7.9 percent last year, the slowest since 2008, is the world’s biggest metals importer and accounts for 30 percent of BHP’s sales. China’s growth may decline to 7 percent to 8 percent, and stay at that level for the next decade, outgoing BHP Chief Executive Officer Marius Kloppers said Oct. 17.

“Eventually we’ll see growth come back below that band of 7 to 8 percent, but it’s still a number of years away,” said Paul Xiradis, chief executive officer at fund manager Ausbil Dexia Ltd. in Sydney.

BHP gained 1.7 percent to close at A$33.68 in Sydney, down from an intra-day high of A$34.18. Rio Tinto Group, the world’s second-biggest mining company, rose 2.7 percent while the key S&P/ASX 200 Index fell 0.2 percent.

Hong Kong’s Hang Seng Index pared gains after Kerr’s comments on China’s economic growth and export data for the nation missed estimates.

Less Than Forecast

China’s exports rose less than forecast for the first time in four months, leaving the world’s second-largest economy with weaker global demand to support its recovery, according to government figures released today. The government is aiming to achieve 7.5 percent annual growth through 2020 under new Premier Li Keqiang.

“The biggest risk is clearly from our perspective what happens in China, and around the developing worlds, but predominantly China,” said Kerr. “At what rate of growth does that continue to happen, and at what trajectory does that happen.”

BHP is continuing its diversification strategy as economies such as China require a range of commodities at different points in their development, with potash potentially becoming the company’s fifth major commodity to invest in, after iron ore, metallurgical coal, copper and its oil and gas business, said Kerr.

Potash Addition

“The possible one we have in the future is potash,” said Kerr. “It could probably be the fifth commodity that we may add longer-term if the Jansen project goes through our investment process.” The Jansen project in Saskatchewan, Canada, the world’s largest potash-producing region, may cost $14 billion, BMO Capital Markets wrote in an Oct. 22 report.

BHP in August put an estimated $68 billion of projects on hold after revenues declined, including an expansion of the Olympic Dam copper-uranium mine and the Jansen potash development. It said at the time it didn’t expect to approve any spending on major projects during fiscal 2013, which ends on June 30.

A decision on building Jansen “will probably come to the board next financial year,” Kerr said.

Expansion Slows

Global mining companies have slowed expansions and delayed projects on expectations that commodities prices have passed their highs, after economic growth began slowing in China. The 117-member Bloomberg World Mining Index as of yesterday had dropped 14 percent over the year, with BHP down 3.9 percent. In contrast, the Dow Jones Industrial Average rose 13 percent and hit a record this month.

“We think a growth rate of 7 percent in the medium to long term - about five years out - is probably reasonable for China,” Tom Price, a Sydney-based commodity analyst at UBS AG, said during a panel discussion at the summit. The government “will bring about a transition away from an industrial-based economy to a more mature economy, and be very targeted about where they will deploy government funds in infrastructure.”

An expected slowdown in demand for minerals over the next five years makes cutting costs and boosting productivity a priority, incoming CEO Andrew Mackenzie said in February in an interview with the Australian Broadcasting Corp. Kloppers, whom he will succeed in the top job on May 10, said Feb. 20 there won’t be a return to the peak commodity prices of 2007.

BHP made cost cuts of $944 million in the six months to Dec. 31, Kerr told analysts Feb. 20. It’s pursuing more cost savings, particularly from contractors and suppliers as commodity prices decline, Kerr said in an interview on the sidelines of the Bloomberg Summit.

“As our prices come down, we expect their prices to come down,” he said.

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