Melbourne - BHP Billiton [JSE:BIL], the world’s biggest
miner, has turned more wary on the outlook for commodity markets as some
players face tighter access to credit, but said conditions are not as bad as
during the global financial crisis.
BHP and rivals such as Rio Tinto and Anglo American
[JSE:AGL] have warned that markets are likely to remain volatile in the near
term, but BHP is the first to highlight that customers are starting to face
tougher credit conditions.
“The heightened volatility and uncertain economic outlook
are expected to continue to weigh on sentiment in the markets for our
commodities,” Chief Executive Marius Kloppers told shareholders at the group’s
annual meeting in Australia.
However, in comments later to reporters he was at pains to
stress that BHP is big and diversified enough to be trading profitably despite
the headwinds. He said its iron ore, copper, coal, oil and gas businesses were
holding up well, while conditions were tough in nickel, aluminium and
manganese.
He also played down concerns about tighter credit
conditions, saying they were affecting mainly smaller companies, not BHP’s
major customers.
“No, we don’t have the blind panic of people not trusting
each other,” Kloppers told reporters. “We don’t have the conditions we had in
2008.”
The company’s outlook was more cautious than at its annual
meeting in London a month ago, largely due to the sudden turn in Italy’s debt
crisis.
Kloppers said while Chinese steel mills had been rattled by
Italy’s credit crisis, he remained confident that the Chinese government would
continue to target 8 percent economic growth.
Investors were unperturbed about the less upbeat outlook,
pushing BHP’s shares up 1.1% in a broader market that closed 0.3% higher, as
the challenging outlook is already baked into its share price.
“It’s there for everyone to see, the world’s a much more uncertain place at this juncture than what it has been over the last couple of years,” said Tim Schroeders, a portfolio manager at Pengana Capital.
“It’s prudent for BHP to bring that to everyone’s attention
and highlight that the world has changed and that it is a difficult operating environment.”
BHP’s Australian shares have fallen around 25% since hitting
their high for the year in April as the outlook for the global economy has
darkened, broadly mirroring the performance of Rio over the same period but
underperforming a decline of around 15% in the wider market.
Kloppers reiterated that customers had turned cautious in
managing their stocks and some had cut production.
“We are also aware that for some of the people we do business with, there has been tightening in both the availability of trade finance and the terms on which it can be accessed,” he said.
In contrast to some of its customers facing tougher credit
conditions, BHP itself had no difficulty raising $3bn overnight in the bond
market at what bankers considered a good price.
Still selling everything
Kloppers said that despite challenging conditions, the
company was still able to sell everything it was producing and its customers
were continuing to buy all their contracted volumes.
“There’s nothing that we’ve seen with regard to the large
consumer nations and China and Asia in general that gives us cause for
concern,” said James Bruce, portfolio manager at Perpetual Investments, which
owns BHP shares.
After delivering a record $21.7bn profit in the last financial year, the Australian Shareholders Association pressed BHP to hand back more cash to shareholders, following a $10bn share buyback completed earlier this year, rather than chasing more acquisitions.
Chairperson Jacques Nasser stuck to the company’s line that it
would always consider buybacks alongside potential acquisitions and its plans
to spend $80bn in the five years to 2015 to expand iron ore, coal, copper,
uranium and natural gas production.
“We’ll continue to pursue acquisitions where we believe they
represent value for shareholders,” Nasser told shareholders.
Known as “The Big Australian,” BHP has run into repeated
regulatory hurdles with deals to expand its iron ore operations. Regulators
also stymied its attempt last year to diversify into agricultural minerals with
a $39bn hostile bid for Canada’s Potash Corp.
Despite shaky global markets, analysts are still expecting
the company to post 7% profit growth this year to another record around
$23.2bn.
Iron ore miners, led by Brazil’s Vale and Rio Tinto, have also said they expect the recent slump in iron ore prices to be temporary, with prices already recovering.