BHP Billiton Building Long Term Relationships with China ABARE Conference China s Resource and Manufacturing Future Canberra, 22 June 2004 R.W. Kirkby Group President Carbon Steel Materials
China Driving global raw materials growth We expect China to be a large, sustainable, consumer of imported raw materials Consumption, as % of world total doubles each decade Urbanisation and associated infrastructure is the key driver The growth is not a short term phenomenon While short term spikes may exist, we expect supply to meet demand Page 2
China is a large consumer but short of resources China % of world production and consumption 2003 29 20 20 5 10 12 6 7 5 Iron Ore (Sea) Copper Alumina Nickel Oil -6-10 -15-2 -29 Demand Supply Balance Page 3 Source: CRU, IEA, BHP Billiton
Consumption, as % of world total doubles each decade China % of world consumption (Al, Cu, FeOre, Ni) 30 15 2 3 7 1970 1980 1990 2000 2010 Page 4 Source: Macquarie Research
China steel consumption by sectors 250 200 Million Tonnes 150 100 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 Building Highways Capital goods & construction Shipbuilding Durables (House hold) Cans & containers Auto Page 5
China is still only in the early stages of modernisation. Steel demand which path will China take? 1.2 Steel Demand Intensity of GDP (1950-2002) Steel Consumption per Capita (tonnes/person) 1.0 0.8 0.6 0.4 0.2 0.0 China today 0 5000 10000 15000 20000 25000 30000 35000 40000 GDP per Capita (2002 US$/person) USA South Korea Taiwan Japan Page 6
China s copper demand growth from 1990 to 2002 K Tonnes 4,000 3,000 2,000 Final consumption China s copper consumption has grown by more than 10% per annum since 1990 1,000 0-1,000 Japan CIS / E. Europe W. Europe ASEAN Korea / Taiwan N. America China World Page 7 Source: BME, CRU
Chinese aluminium production vs. alumina imports 6,000 Aluminium Production Alumina Imports 6,000 5,000 5,000 4,000 3,000 2,000 4,000 3,000 2,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Page 8 1,000 0 1,000 0 Thousands of tonnes Thousands of tonnes
The growth is not a short term phenomenon China GDP growth % 15.2 13.5 14.2 13.5 12.6 7.8 9.1 10.9 8.8 11.6 11.3 9.2 10.5 9.6 8.8 7.8 7.1 8.0 7.5 8.0 9.1 5.2 4.1 3.8 1980 1985 1990 1995 2000 Page 9 Source: Global Insight
Urbanisation and associated infrastructure is the key driver China urbanisation - %; population in millions 100% 90% % Urban 80% 70% 60% 50% 484 618 920 40% 30% China 808 726 511 20% 0 10 20 30 40 PPP GDP $ '000 2003 2010 2025 Rural Urban Page 10 Source: China Statistics Year Book, BHP Billiton
China s growth model is sustainable & becoming stronger China s economic resilience is attributable to: - An exceptionally high domestic savings rate - Rapid urbanisation & devt of cities away from the coast - Strong domestic investment - A sustained govt commitment to achieving at least 7 % growth p.a. - Overheating confined to narrow range of industries and regions China s sustainability is underpinned by: - Huge productivity improvements - Significant factor cost advantages - Rapid improvements in infrastructure - Not dependent on exports China is a not an Asian tiger economy Page 11
China s growth model is sustainable & becoming stronger (cont d) These shifts are being driven by: - An increasingly commercial mindset in Chinese companies - The changing structure of the economy from state-owned to non-stateowned - Improved business performance even in State-owned companies The reform process has irreversible momentum Page 12
Clear investment planning has led to a rapid improvement in infrastructure east-west rail linked to major ports East/ West Rail Projects Alanta taw w Shankou S H Ha aerbin Urumqi U Cha C hang ngchun Xining B Baotou H ohho ot t Datong Qinhuangdao Shenmu u BEIJING Jintang Tianjin Da li an Yinchuan H u an gh u a S Shijiazhuan ngg Taiyuan Yantai n D ezhou L Lan anzhou C Ch hang angzhi Jinan n Qi ng da o H oum a Ri zh ao Zhe engzho ngzhou Lianyungang Xian Shenyan S henyang g Conventional Railways Electrified Railways 55,000 53,000 52,300 9,700 15,000 20,000 50,000 30,000 Lasa km Che hen engd ngdu u C Cho hongq ongqing g Guiyang Liuzhou Kunming Cha han angsha N anning g Zhanjiang Nanjing Hefei g Shan angh ngha ghai i Legend end Wuhan n Han ang ngzhou 1. Beijing to Lh asa N anchan ng g 2. Dato ng to Qin huan gdao Shenm u to Hua nghu a 3. Taiyuan to D ezhou Cha ngzhi to Qing dao Fuzhou Hou ma t o Rizhao 4. Lia nyungan g to Alanta w Sh ankou Guangzh angzho ngzhou u Hong H Kong 5. Xian to N anjin g 6. C hong qing to Shang hai 7. Ku nming to Sha ngha i 8. Ku nming to Zhanjiang CY1995 CY2000 CY2005 CY2010 Page 13
Rapid urbanisation & development of cities away from the coast - Chongquing skyline, June 2004 Page 14
The gap between supply and demand can be filled Seaborne Iron Ore 900 750 600 Other Indian SA BHP Billiton Other Aust Brazil mtpa 450 300 150 0 2004 2006 2008 2010 Page 15 Source: BHP Billiton, Public Announcements
The gap between supply and demand can be filled Seaborne Met Coal mt 200 Other USA Canada Australia other BHPB 100 0 2000 2002 2004 2006 2008 2010 Page 16 Source: BHP Billiton, Public Announcements
Chinese growth translates to opportunity for BHP Billiton China Currently 10% of total company revenues, up from 5% a year ago Includes Iron Ore, Copper, Metallurgical Coal, Manganese, etc 700 US$M 600 500 400 300 200 100 0 *FY02 average quarter sales F Y02* F Y03Q1 FY03Q2 F Y03Q3 FY03Q4 FY04Q1 FY04Q2 Annual sales to China (US$B) % of total BHPB sales FY02 0.6 3.6 FY03 1.2 6.9 FY04 (H1 annualised) 2.2 9.8 But it will have ups and downs Page 17
Forging closer ties with China to maximise opportunity BHP Billiton is actively forging closer links with China through the creation of joint venture partnerships, ie: Wheelarra JV, new LNG contracts, etc. Increasing focus on sourcing from China BHP Billiton is continually reviewing other trade and investment opportunities in China Supporting our commercial activities, the strengthening of trade and economic relations is vitally important as China continues to grow and prosper, eg: Importance of China s WTO accession in developing market-based business practices Page 18 Support for joint study into the feasibility of an Australia/China FTA. BHP Billiton providing input
Conclusion Chinese growth is not a short-term phenomenon but rather has strong structural underpinnings with so called over-heating confined to certain parts of industry sectors and regions We expect China to continue to be a large, sustainable, consumer of imported raw materials Supply expansions are already underway to match this increased demand We welcome any moves to strengthen trade and economic relations between Australia and China Page 19
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