BHP Billiton cautiously optimistic about China

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LONDON (ShareCast) - Diversified mining giant BHP Billiton (NZSE: BHP.NZ - news) sounded a cautious note on the global economy in its annual general meeting on Thursday, saying that while there have been signs of stabilisation, markets are still tough.

Chairman Jac Nasser
said that financial and economic problems continue to be felt across the world and "it's difficult to predict how and when they will be resolved but we do expect it to take considerable time".

He said that high public debt levels in both the US and Europe (Chicago Options: ^REURUSD - news) "need to be addressed" to ensure a firm recovery in these economies.

Furthermore, while China remains the driver of growth, growth has been slower as of late. "This is primarily driven by the Chinese Government steering the economy to more sustainable long-term growth. It is also due to the cyclical and structural challenges being faced in both the domestic Chinese economy and global markets. This in turn has raised questions about China's future demand for natural resources."

He admitted that the growth levels seen in the past decade in China cannot continue, though the further urbanisation and industrialisation in the country should support future growth in demand for commodities.

Nasser: "Today we are four years into the global financial crisis. Given the fundamental shifts taking place, the low levels of growth in many developed countries and the volatility in just about every facet of life, from stock markets to politics to the weather, the business world is as tough as ever. Our industry is particularly challenging."

Iron ore prices

Prices for iron ore in the last six months have been hit by restocking activity in China, said Chief Executive Officer Marius Kloppers. "This destocking, coupled with lower steel demand from Europe, India and the Middle East, led to a sharp decrease in the price of steelmaking raw materials," he said.

While restocking has commenced and is largely complete, BHP doesn't expect any material pricing upside in the near term, he added.

Nevertheless, the CEO sounded cautiously optimistic about the Asian powerhouse, saying:

"China's GDP growth is expected to range between seven and eight per cent in the coming years. While this is lower than the double digit growth rates seen over the past decade, it is coming off a much larger base and will still underpin strong underlying growth in commodities demand. China's unique and substantial industrialisation and urbanisation continues to give us confidence in the long-term outlook."

Kloppers highlighted the company's diversified portfolio, which he stressed means it is "poised to capture the opportunities presented by markets in all stages of the demand cycle".

"[...] Our portfolio is perfectly suited to the economic conditions that lie ahead, and it is for this reason we are even better placed to outperform our peers over the next decade, and well into the future," he said.