BHP Billiton remains confident that demand for its commodities will remain strong, despite also expecting markets to remain volatile over the short term.
And Chairman Don Argus also expressed disappointment that resource companies like BHP had been downgraded by nervous markets since mid-May.
The annual report commentary was basically bullish, and of course again argued strongly in favour of the Rio Tinto offer.
Writing in the company’s US version of its 2008 annual report Mr Argus said he had "no doubt" economic growth in the Asian region would slow at some point, but that slowdown would be concentrated in regions orientated to the light export sector.
"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 and, therefore, our revenues," Mr Argus said.
"Unfortunately, mining stocks have seen a significant de-rating since May this year on the back of short-term uncertainty.
"This is disappointing for the management and shareholders of BHP Billiton.
BHP shares peaked at a record $49.55 in mid-May but have since fallen 27%, although closing 35c higher at $36.40 yesterday after being down for most of what was a very volatile market.Rio shares rose 42c to $106.85, after being down for most of the day.
In the report the company said that "The 2008 financial year has seen higher average prices for most of our commodities than in the prior year," and "Demand for raw materials in the emerging market economies has remained strong."
But it warned increased iron ore supply from itself, Rio Tinto, Brazil’s Vale, Fortescue Metals and Indian suppliers meant the gap between supply and demand was starting to close.
Mr Argus said that while commodity markets are expected to remain volatile in the short term, "we are confident that longer-term market fundamentals should support growth in commodity demand and, therefore, our revenues."
"Margins and cash flow will be impacted by cost inflation. But our strategy to ensure we have a suite of long-life, low-cost assets, diversified by geography and commodity, that can be expanded and are largely export oriented, is proving successful at delivering consistent results for all our stakeholders," he wrote.
Mr Argus also gave a strong hint that the company, which shipped commodities that generated over $US11 billion, or more than 19% of total revenues into China in 2008, is expecting a slowdown in the world’s fastest growing major economy in the not too distant future.
"I have no doubt that economic growth in the Asian region will slow at some point but, if I look at China specifically, the slow down is concentrated in regions oriented to the light export sector.
"The sectors of the economy oriented more towards domestic consumption are still performing well despite increasing input costs, particularly for energy.
"Asia is becoming increasingly dominant, today accounting for nearly 30 per cent of global Gross Domestic Product (GDP).
"These economic shifts are having many consequences. For BHP Billiton, rapid and continuing Asian growth has put pressure on demand for our products, which are essential for the building and production of city infrastructure and personal goods that characterise Asia’s urbanisation and industrialisation.
"We expect Asian demand for our products to continue. Our response has been to streamline our business to enable us to produce as much product as fast as possible within the non-negotiable framework of the highest safety and environmental standards."
In the year to June BHP reported another record profit of US$15.4 billion, the seventh consecutive full-year profit increase, and boosted dividend for a second year in a row.
On BHP’s Rio bid, Mr Argus produced another argument in its favour: the emergence of major rivals in the newly emerging economies of China, Russia and Brazil. It’s an argument we haven’t heard before.
"It is not only demand for our products that is being impacted by global economic shifts. As the world’s largest diversified resources company, we are watching the creation of competitor companies that are spearheading the economic emergence of countries like Russia, Brazil and China," Mr Argus said.
"It is in this global context that the Board endorsed a proposal to combine BHP Billiton and Rio Tinto, two leading resources companies that together could help meet the developing economies’ demand for resources better and faster than the two companies do apart.
"A combined company would have a greater ability to develop the next generation of large-scale projects to provide greater volumes of product for the benefit of its customers, the communities in which it operates and its shareholders.
"In making the pre-conditional offer for Rio Tinto, the Board remains absolutely focused on value for shareholders. We are confident that both sets of shareholders would share the value of a combined company."
CEO, Marius Kloppers made a more standard argument for the $US140 billion all share offer in his brief comments in the US version of the report.
He pointed out that BHP was assembling an impressive list of new projects across all divisions,
"Ten major projects, spanning five commodities, started production during the year. The Board approved a further seven for development, bringing our total number of projects in either execution or feasibility to 28, representing an expected capital investment o
