PERTH (miningweekly.com) – Companies and governments would have to work together to lower costs and improve productivity as commodity prices achieved in the recent past would not return in the near future, mining group BHP Billiton CEO Marius Kloppers said on Wednesday.
“The record prices we experienced over the past decade, driven by the demand shock, will not be there to support returns over the next ten years.
“What we can instead expect is demand growth at more predictable and sustainable levels and more moderated pricing. This mean reversion in prices and returns is something that we at BHP have anticipated for some time,” Kloppers said in Brisbane on Wednesday.
He noted that with China’s gross domestic product growth slowing to between 7% or 8%, steel intensity use would also continue to moderate, causing growth rates for iron-ore and coal to decrease.
“The market, however, will still offer substantial opportunities for those companies and countries that can supply competitively and at low cost.”
Kloppers added that, in the current decade, BHP anticipated that the global iron-ore market would grow by some 650-million tons, below the 800-million-ton increase that was seen over the last decade.
“At the same time, the progressive transition into a consumption-based economy implies increased demand for commodities other than steel, such as copper, energy, aluminium and so on. As the middle class continues to grow, better diets will also imply a higher demand for commodities such as potash,” Kloppers said.
The mining boss noted that if companies wished to capture the opportunities ahead, the inevitable moderation of prices had to be considered.
“BHP’s analysis shows that the next round of minerals investment in Australia will, almost without exception, be captured only if costs are decreased and productivity is improved. Companies and governments need to work in partnership towards attracting the next rounds of investments.”
Kloppers said that industry could, and should do the heavy lifting in this, but added that government policies should also enable and complement efforts to restore competitiveness.
“Given the current cost pressures, it is abundantly clear that government and companies will have to work together to achieve this. Simply put, Australia’s key competitive advantage is its large and high-quality minerals endowment. We need policies that recognise this to allow the country to thrive,” he added.
Australian Resources and Energy Minister Martin Ferguson also recently warned that simply having the resources was not enough and that Australia would have to roll up its sleeves, boost its competitiveness and lower costs.