BHP Billiton to follow China on its next growth journey

BHP Billiton will invest heavily in energy and food as it follows China on its transition from a construction-led economy to a consumption power-house.

Speaking to the media in Beijing where he wound up a 10-day tour of meeting BHP’s commodity customers in China, India, Japan and South Korea, BHP boss Andrew Mackenzie said while Chinese steel production would remain strong the company was also keen to meet the country’s other needs.

“We see a Chinese economy gradually shifting from construction to consumption,” he told reporters yesterday, adding “and so, will we transition.”

He said materials with high consumer demand included copper, energy and potash.

“Copper is core. Coal is core. Oil and gas is core. Potash is core,” Mackenzie said.

“We’ve exited diamonds. We’ve exited arguably medium-sized ore bodies which don’t fit with our overall strategy to own the great ore bodies of uranium and copper and to some extent in oil and gas. And we reduced our exposure to liquefied natural gas.

“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.”

BHP recently implemented a four-pillar company strategy which would focus on iron ore, copper, coal and petroleum assets with the view that these held the most profitable assets.

Potash is seen as the fifth pillar, with the company last year announcing it planned to invest $800 million in the commodity per year.

Amid growing concerns over China’s growth, Mackenzie said the country’s steel production was set to total 1.1 billion metric tonnes within the next 10 years.

"China's urbanisation has a long way to run," Mackenzie said.

He said a crackdown on Chinese pollution would mean steel mills increasingly look to high grade material, much of which is produced in Australia, but conceded BHP was over-zealous in its expansion of iron ore operations.

“We don’t quite see the case for the scale of investment we saw in last 10 years ... But the base business we built is going to be a strong bedrock for decades to come,” Mackenzie said.

While not commenting directly on lower iron prices, which have dropped 30 per cent since the start of 2014 and sit at around $US92 a tonne, Mackenzie said he was “open to the fact that this year a lot more low-cost supply has been added and we expect the demand to grow”.

Highlighting the company’s low cash cost, he said BHP was still “strongly competitive at prices much lower than today's prices”.

And while coal prices have also been hammered, Mackenzie was bullish about its future demand in China with energy consumption set to increase.