So BHP isn’t really upbeat about the immediate outlook, and judging by the comments below, the company seems further pressures ahead, but is making sure it is in the best position possible to quickly capitalise on the upturn when it eventually appears.
Being the world’s largest mining company leaves it uniquely positioned to speak with some authority on how it sees global commodity markets and customers.
Here’s what it said in its outlook for the world economy, then commodities
In August 2008 we highlighted the short term global challenges that were evident.
At that time, global economic activity was moderating, financial markets were volatile, and inflationary pressures were apparent.
Since then, the global economy has deteriorated at an unprecedented rate taking most observers by surprise.
Economic growth has been impacted by a worldwide dislocation of financial markets that quickly moved into the real economy as credit markets froze and consumer and business confidence collapsed.
Deflating asset values, particularly home values in the United States and parts of Europe continue to impact credit availability and confidence.
The contraction that began in the United States has extended to impact growth rates in emerging economies as demand for their exports slows.
We expect global economic growth to be weak over the short to medium term as developed economies such as the United States and Europe enter recession and the rate of growth of emerging economies like China slows.
Like many governments around the world, the Chinese government has introduced wide ranging stimulus measures.
However, it is likely that these measures will take some time to have a positive flow through to economic activity.
In reaction to deteriorating financial and economic conditions, there is a risk of increasing protectionism by governments which may hamper any global recovery.
Whilst the global economy faces significant challenges, our long term outlook remains unchanged.
We expect emerging economies’ long term growth to be robust as they continue on the path to urbanisation and industrialisation.
Commodities Outlook Amid uncertainty surrounding the outlook for the global economy, weakness and volatility in the commodity markets has prevailed during the first half of the 2009 financial year.
During this period, spot prices for key commodities have fallen steeply in US dollar terms.
However, weaker local currencies against the US dollar and the benefits of falling input prices, albeit with some lag, have partially offset the impact on margins.
The unprecedented deceleration in the global economy has sharply reduced demand for commodities.
Producers in both developed and emerging economies have responded quickly by closing marginal sources of supply and deferring projects.
In the short term, it is expected that many producers will primarily focus on cash conservation to cope with financial distress.
We expect that commodity price weakness and volatility will persist.
However in the long term, we expect continued strong growth in demand for commodities from China and other emerging economies.
We continue to expect that long-run commodity prices will be driven by their long-run marginal cost of supply.
Reductions in current capital spending across the industry may constrain industry supply when demand growth recovers.
How BHP is positioned
During the six months to December 2008, we have witnessed an unprecedented fall in commodity prices, with market prices falling in the order of 50 per cent during this period.
As the global economy continues to deteriorate, we are witnessing further demand contraction for our products.
We believe it is likely that uncertainty will extend into the medium term.
As a consequence of the macro economic environment we have taken a number of actions consistent with our focus to maximise long term shareholder value.
These actions include the decision not to proceed with the Rio Tinto offers, adjustments in production where physical demand decreased, suspending cash negative operations and deferrals of low priority capital expenditures.
Notwithstanding the current economic uncertainty, we continue to believe that the needs of the developing world will drive long term demand for our products.
Furthermore, the supply adjustments we are now witnessing could result in a constrained supply side when economic recovery does take place.
The financial and operating strength of the Group means that we are able to continue to take a long term view, not compromising long term value as a result of short term pressures.
