Long-term outlook for commodities strong, despite short-term volatility - Argus

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Long-term outlook for commodities strong, despite short-term volatility - Argus Text Size

  By: Mariaan Olivier Published on 16th September 2008

Don Argus, the chairperson of the world’s largest diversified miner, BHP Billiton, is confident that the longer-term outlook for commodities was strong, despite some short-term volatility.

Argus said that mining stocks had seen a “significant” derating since May on the back of short-term uncertainty.

“While we expect commodity markets to remain volatile in the short term, we are confident that longer-term market fundamentals should support growth in commodity demand…,” he wrote in BHP Billiton’s US annual report.

Argus said that demand from Asia, which currently accounted for nearly 30% of the world’s gross domestic product, was expected to remain strong.

He said that rapid and continuing Asian growth had put pressure on demands for BHP Billiton’s products, which were essential for the building and production of city infrastructure and personal goods that characterised Asia’s urbanisation and industrialisation.

Last month, BHP Billiton's takeover target, Rio Tinto, said that China might have to build between 40 000 and 50 000 skyscrapers by 2025 to meet the needs of the country’s urbanisation influx.

Argus said that while he had “no doubt” that economic growth in the Asian region would slow at some point, he believed that sectors of the economy orientated more towards domestic consumption would perform well, despite increasing input costs, particularly for energy. The slowdown was more concentrated in regions orientated in the light export sector, he added.

“Our response [to continued Asian demand] has been to streamline our business to enable us to produce as much product as fast as possible…,” he said.

Argus also said that BHP Billiton was also keeping a close watch on the creation of competitor companies that were spearheading the economic emergence of countries such as Russia, Brazil and China. ‘RESOURCING THE FUTURE’

Meanwhile, BHP Billiton CEO Marius Kloppers reiterated that a tie-up between his company and rival Rio Tinto would “unlock synergies and provide greater value”.

In February, BHP Billiton announced a takeover for Rio Tinto, offering 3,4 of its own shares for every Rio Tinto share. The smaller company, however, rejected the offer, saying it undervalued its growth prospects.

“BHP Billiton does not need Rio Tinto to have a great future, but we believe the two companies combined will be better placed to meet the world’s future need for our products.”

“We have a critical role in providing the raw materials for growth that so many economies need; economies going through industrialisation and urbanisation on a scale and intensity not experienced before. We are resourcing the future,” Kloppers said.

Editor: Mariaan Olivier