BHP Billiton Profits from Chinese Consumption

Mining stock BHP Billiton has repositioned to take advantage of China's economy emerging from investment to consumption driven

Mark Taylor 21 August, 2013 | 2:20PM
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BHP Billiton is planning to unlock more cash and higher returns from fewer incremental investments next year. This is music to our ears, and we suspect also to those of the market. Surprising then is news the company will invest $2.6 billion in Jansen potash, a commodity whose market is presently in turmoil and one that is still very immature.

Still, $2.6 billion won't break the bank and can be viewed as BHP planning for China's economy emerging from investment to consumption driven. Rising living standards will demand higher-quality food and potash is potentially a key beneficiary, but this is in the longer term and the company is still taking a considerable leap of faith.

BHP was positive on the medium-term outlook, saying continued Chinese urbanisation, in conjunction with a slowed investment supply, are suggestive of a more balanced rather than oversupplied market. We concur, and a low-cost producer like BHP can thrive in that scenario.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC1,962.00 GBP0.00Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.