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Tuesday, 20 August 2013
BHP production volumes continue to grow - what about China?
Interesting to read the preliminary results presentation ASX release from BHP Billiton today, which announced a handsome final fully-franked 59 cent dividend for holders, a small increase on FY12. The FY13 profit was well down on the prior year, but production volumes continue to soar and look likely to be very strong in the coming year:
There is certainly a theme throughout of "testing times" and a need to keep a lid on costs. The most notable point for me in the release was the projected fall in capital and exploration expenditure for the coming year.
This mirrors what is happening across Australia. The mining construction boom is passing (or, probably more accurately, has passed) its peak. The story going forward is about production, and resources exports look likely to continue to grow strongly.
The RBA's Chart Pack puts growing export volumes trend and what is happening over in China into graph form. Export volumes of resources continue to grow very sharply:
Bulk commodities exports have been absolutely rocketing over the past decade. This means that the continued growth of China is vital, because there is a deluge of ore hitting the market which is likely to put downward pressure on that commodity price:
And as for where all of Australia's earth is going? Well, increasingly it's heading to China. Note how the percentage share of values of exports heading to India has waned.
China's GDP growth has been threatening to stall, although the latest data dump has since suggested that the red line may yet be pointing towards a number starting with a 7 (i.e. good). Will the sliding trend be arrested?
China's monthly indicators show that Fixed Asset Investment (FAI) remains strong, as did the latest data dump. This is important for Australia:
China's property bubble remains a key worry - ghost cities and all that...
But credit growth does appear to be in a downtrend:
And finally, China's industrial production (IP) remains on an upward trajectory, which hopefully means that China can achieve its GDP growth of 7%.
Our economy is highly leveraged with regards to private/household debt, and it is now also highly leveraged against the iron ore price and our fuelling of the China boom. The future is inherently uncertain, but there is one thing that does look certain: Australia's future will not be dull!