China’s economy is slowing, but the trick is working out how fast and which sectors will feel it first.
BHP has a big exposure to China, a massive buyer of the world’s biggest mining company’s commodities, particularly iron ore and coal to make steel.
So BHP puts a lot of effort into analysing and forecasting the economic health of China. Its business depends on it.
In annual results released today, BHP lowered its forecast of peak Chinese steel demand to between 935-985 million tonnes in the mid 2020s.
However, BHP sees this as favouring low-cost producers such as itself.
Chinese steel production fell by 1.3% in the second half of the 2015 financial year, triggered by a slowing in construction .
“Although China’s steel exports are at an all-time high, we expect subdued crude steel production growth over the remainder of the 2015 calendar year with some upside potential should the construction sector recover,” BHP says.
“However with steel stock per capita still well below that of developed nations, we expect moderate but sustainable growth in Chinese steel production over the next decade.”
On China’s economy in general, a slowdown in the property sector and fixed asset investment led to lower economic growth following policy tightening in 2014
“Consumer spending remained resilient reflecting the continued rebalancing of the economy,” BHP says.
“A number of interest rate reductions, cuts in bank reserve requirements, boosts to infrastructure spending and administrative measures supporting the property market are likely to buttress growth over the remainder of the 2015 calendar year.”
However, as BHP expected, the economy is growing more slowly, though off a higher base, as it matures over the medium term and the government’s reform program promotes domestic consumption over investment.
“We expect near-term volatility to continue as the authorities press ahead with reform in a cautious but sustained manner as they seek to improve the efficiency of capital allocation in the economy while maintaining support for employment.
“However, our robust longer-term outlook for China remains intact as the economy transitions.”