Nobody watches China more intently than BHP Billiton (BHP). That country is the critical market for the Australian mining company’s iron, copper, coal, oil–you name it.
So when BHP Billiton sounds a note of caution on the staying power of China’s commodities buying spree, investors ought to pay attention.
So what’s BHP Billiton worried about?
Thanks to heavy buying in the last six months, China has replenished stock piles of key commodities that it had drawn down in the worst days of the global economic slowdown. But now those stock piles are well above normal levels and BHP Billiton is worried that buying will slow down if Chinese companies find out that world demand for their own products hasn’t picked up.
It’s the same question that I have as I look almost anywhere in the global economy: Has demand really picked up? Or is the increased buying we’ve seen in markets as different as iron ore and computer chips simply re-stocking of abormally low inventories?
BHP Billiton said that it doesn’t know. It sees signs of what the company called stabilization in the world’s developed economies. But it also said that it sees little evidence for sustainable demand for commodity metals emerging post-summer in the northern hemisphere.
Only time will tell.
That’s a cliche in journalism. But just because something is a cliche doesn’t mean it’s not true.
dblwy, my read comes from Financial Times report on what is probably th same speech. I think you can reconcile the two views (from the same guy) by looking at time periods. The worry in the FT was over the near term demand from China. I don’t think anyone doubts that the long-term demand–thorugh 2015–will be quite healthy–barring global economic collapse.
Here’s part of the problem that BHP (and the rest of us) hav in judging demand out of China. Official Chinese GDEP growth in Q3 was reported yesterday at 8.9% increase from 2008 Q3. Everyone of course, knows that the Chinese cook their GDP numbers. Many governments do but the Chinese really torch theirs. Some economists estimate that growth in the quarter from 2008 Q3 might have been as high as 30%. Obviously not sustainable. Quite a range and the high end not sustainable. So go ahead and forecast demand with that.
Jim – Great to see you back! I missed you’re comeback and just found you again. I’ve spent lots of time living and working out of Singapore and dealing in Southeast Asia and Mainland China. If BHP is nervous on word of added caution – WATCHOUT. It’s extremely difficult to get reliable data out of China. Relationship ties anchor. My guess is that’s the basis for the BHP concern. http://bit.ly/I4SR8
Jim – the Chairman of BHP is quoted on Bloomberg as saying he sees unprecedented demand thru 2015:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGU.3vl9e3G0
And nothing about inventory re-stocking. Of course he’s talking his book but the sets of information would seem to be somewhat contradictory.
The chip industry might be different because the PC sales is up and smartphone is drawing a lot attention. But the concern for oil/iron etc is definitely true. What would be the impact on overall market if commodity has a sharp pull back? What kind of timeline will you expect? Thanks