BEIJING— BHP Billiton will shift its China-focused investments toward consumer-oriented commodities and de-emphasize industrial material such as steel and coal, its chief executive said, though he expressed confidence in economic growth and steel demand in the world’s No. 2 economy.
Chief Executive Andrew Mackenzie said the Anglo-Australian mining company saw positive signs in efforts by Chinese leaders to transform the Chinese economy to one that depends more on consumption. Economists and think tanks have warned Beijing that it can’t sustain growth through its traditional reliance on spending on big-ticket projects such as highways and construction.
“We see a Chinese economy gradually shifting from construction to consumption,” he told reporters in Beijing on Thursday, “and so, will we transition.”
He cited rising Chinese demand for materials with more consumer uses, such as copper and potash, an ingredient in fertilizer. “We imagine we will continue to creep our exports of steelmaking materials like metallurgical coal and iron ore, but we’re much more likely to make major investments in what we feel are the next phase of China’s growth in energy and in food,” he said.
Mr. Mackenzie’s comments were made amid concerns about China’s slowing economic growth. First-quarter growth was 7.4% from a year earlier, down from 7.7% for last year and much higher rates in previous years.
China’s property market, a major consumer of steel, also is slowing. That has contributed to a slump in prices for iron ore, which is used to make steel and is a significant BHP export to China.
China’s top economic planning agency last month said it doesn’t expect iron-ore prices to rise from their current level near two-year lows for the next three months, given high inventories and additional production.
Mr. Mackenzie declined to comment on what he said were short-term trends. Still, he said, “We’ve been open to the fact that this year, a lot more low-cost supply has been added.”
He said China’s steel production could rise to 1.1 billion tons within the next 10 years. China’s crude steel production totaled about 779 million tons last year, according to government figures. “China’s urbanization has a long way to run,” he said.
Mr. Mackenzie said the company continued to look for ways to be more efficient. Itrecently cut jobs across the company and has been selling assets.
He declined to comment on whether dividend increases or buybacks might be in the cards for investors.
Source – WSJ