The sustainability of the Chinese growth story may be dividing opinion however its impact on the fortunes of diversified miner BHP Billiton (LON:BLT) is there for all to see. Chinese demand for commodities remains robust and where it counts, in its high margin businesses, the company has had a solid second quarter of 2010 and a good twelve months with lots of production records. The group’s Petroleum division had a consecutive annual production record, largely because of record output from the Gulf of Mexico. Iron Ore has kicked goals ten years in a row; the Samarco iron ore operations in Brazil had a record quarter and a record year. North West Shelf oil and gas and Hunter Valley coal had record annual production, and elsewhere records were broken in nickel and alumina.
The market seeks a guide to the world economy from each quarterly, or half year report, particularly from BHP Billiton and Rio Tinto. The views of the CEOs from these firms are assumed as the bellwether indicator for what lies ahead. BHP did not have much to say in the recent quarterly other than to say the company was still cautious about the world economy. The miner is concerned that, as governments adjust fiscal settings, demand for raw materials will slow.
There is certainly some truth in the latter point because a high taxing Democratic Government in the U.S. will achieve the opposite of the desired outcome of businesses investing to grow the slice of the pie and a reduction in the numbers of unemployed.
The annual changes in industrial production, with the exception of less than a handful of countries, show that there is clearly a global recovery taking place. And what’s more world trade bounced sharply in this year’s first quarter, mainly because of strong surge in activity in March, providing further evidence of a recovery.
BHP’s share price has outperformed the broader market over the past few weeks. The watered down mineral resources rent tax (MRRT) is fading into the background, but not for long if Labor wins the election on 21 August 2010 and the Australian Greens control the Senate.
Although the Australian Liberal Party is clawing back support, the coming election is going to be a very close run. The Australian Greens would like to impose a higher tax of 60% on the miners. So it is not surprising that…
