BHP believes in China By Andrew TrounsonOctober 19, 2007...

BHP believes in China By Andrew Trounson
October 19, 2007 08:36am

MINING giant BHP Billiton's new chief executive Marius Kloppers says the Chinese market is now five time more important to BHP than the US.

Mr Kloppers shrugged off worries about rising costs, declaring that almost all the increases could be defrayed by higher prices in a commodity market that was the tightest he has seen.

In a bullish public speech in Melbourne, his first since taking the reins earlier this month, Mr Kloppers said yesterday he was focused on accelerating expansion projects, and that BHP would come close to increasing output volumes by 10 per cent in 2007-08, as it capitalised on long-term strong growth in China and India.

Global financial markets might be concerned about a slowdown in the US, but Mr Kloppers said China's industrially focused growth was five times more important to BHP than US growth, in terms of the raw material demand it was generating.

"The iron ore market is tighter than I have ever seen it," as were the coking coal and manganese markets, he said. The copper supply-demand picture was favourable "and oil is trading toward $US90 a barrel," Mr Kloppers told 500 guests at a UBS Wealth Management lunch.

"It would be difficult for me to see in this current environment, in the short term, a series of events that would give me serious pause and make me worry about margin compression."

Mr Kloppers said that despite rising costs - which were being fuelled by the same rising oil and iron ore prices BHP was enjoying - he was confident the company would be able to ensure that about 80 per cent of price increases in aggregate would continue to flow through to its bottom line.
"We see no reason why we shouldn't be able to continue to pass to profit the majority of the price impact that we are seeing," he said.

The oil price is likely to help lift BHP's margins, underscoring the importance of BHP's oil and gas division, which differentiates the company from conventional mining companies.

Mr Kloppers said China was set to continue to grow strongly in the long term, as its 1.3 billion people enter "the industrial age", followed by India.

"The urbanisation program continues apace and new cities are arising overnight," he said.

Mr Kloppers said some 20 large economic zones were emerging in China that would eventually boast 11 cities with populations of 15 million or more, and a further 18 cities with more than 10 million people each.

He said: "How many roads have still got to be built, railways, subways, airports, ports, pipelines and (electricity) generating capacity?"

While China would come under pressure to cut greenhouse case emissions and ensure environmentally sustainable growth, Mr Kloppers said growth would remain the country's priority.

"I think their overriding commitment is to grow the economy and to grow rich before they grow old," Mr Kloppers said, referring to China's ageing population.

"They have a major demographic problem coming in a number of decades and they have to get the economy affluent before that time period."

BHP shares gained 3 per cent to $47.70, while rival Rio Tinto gained 2.6 per cent to $112.83.