BHP CEO Andrew Mackenzie upbeat on China’s ore, coal demand
BHP Billiton chief executive Andrew Mackenzie says China’s economy is showing “strength and resilience”.
BHP Billiton chief executive Andrew Mackenzie says China’s economy is showing “strength and resilience” and that its determination to restructure its steel and mining industries is driving demand for Australia’s two biggest exports, iron ore and coal.
The buoyant statements on the Asian powerhouse come as analysts continue to forecast higher prices for coal and iron ore. Their prices have surged in recent months and held up much longer than either miners or pundits had expected.
Speaking after BHP’s annual general meeting in Brisbane yesterday, Mr Mackenzie said China’s focus on restructuring mining and steel industries, despite the increased cost this was having on downstream industries, was “very intriguing”.
“They are very determined to go forward with it, even though some of their downstream producers are clearly facing higher input prices,” he said.
“It seems they do want to make their industry more efficient and, interestingly enough for us, they are more comfortable buying some of their more basic materials from the seaborne market rather than domestically.”
Mr Mackenzie said China appeared to have built up trust in the seaborne commodities market as its trading relationship with Australia had developed in recent years.
China’s efforts to cut back inefficient coal production has been the major factor in dramatic price rises that have seen coking coal prices more than triple since the start of August to boomtime levels of $US308 a tonne, and thermal coal prices more than double this year to $US110.
These moves have come on top of measures to remove overcapacity from its steel industry to make it more efficient.
Analysts have been surprised at the discipline China has shown in holding back its own high-cost coal production as prices have risen to levels that would make short-term profits, despite steel mills being forced to buy expensive imported raw material.
Yesterday, Deutsche Bank became the latest to raise forecasts for coal and iron ore, saying the markets looked like they would be strong for most of next year.
“The Chinese government’s priority remains growth, which is likely to accommodate monetary and fiscal policies continuing to drive the traditional growth engine of fixed-asset investment, both in property and in infrastructure,” the bank said.
“Due to a combination of supply discipline and some constraints, the supply response (to higher prices) is likely to be fairly muted to start off with.”
Deutsche Bank boosted its 2017 forecast for coking coal by 57 per cent to $US175 a tonne, its forecast for thermal coal by 13 per cent to $US71 a tonne and its forecast for iron ore by 21 per cent to $US55 a tonne.
Iron ore prices were trading at $US73 yesterday. Iron ore traded as low as $US39.51 this year.
Mr Mackenzie said BHP still believed current prices were unsustainable because of new supply expected to come into the market. But he said it was possible the restructuring and determination in China could limit how far prices fell, depending on other market factors.
“There is a little bit more strength and resilience in the economy that is helping demand; at the same time we are seeing the impact of rationalisation of supply,” Mr Mackenzie said of the current price rise. “But unless we see more supply disruptions the market will drift back.”
Meanwhile, BHP chairman Jac Nasser, who last month announced he would not seek re-election at BHP’s 2017 meeting, said he would step down some time between now and the middle of next year.
The leading internal contenders for the position are thought to be Carolyn Hewson, Malcolm Broomhead and Lindsay Maxsted. Mr Nasser said external candidates would be canvassed, as they are in BHP’s chief executive succession planning.
“We always look externally,” he said. “We always have a strong preference for inside and all things being equal, it’s inside — but they’re not always equal.”
He said he would have no more influence in picking his successor than other board members.
Mr Nasser hit back at recent comments from former Labour treasurer Wayne Swan, who accused the miner of locating its marketing hub in Singapore to avoid taxes.
“Wayne Swan is perfectly within his rights to suggest that maybe the company should look at other alternatives,” he said.
“We have and we’ve decided Singapore is the best place for that role. You approach dangerous territory when governments or members of governments start to want to meddle in how a company manages its operations.”
Mr Mackenzie said the location of the marketing hub was good for Australia.
“Proximity to our customers undoubtedly secures higher prices and greater volumes of which taxes are paid in Australia,” he said.
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