BHP Billiton adds to gloom over growth in China

Spectacular growth is noticeably slowing
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The Independent Online

BHP Billiton added to the chorus of gloom on the Chinese economy as mining stocks suffered from more falls in commodities prices. The world's biggest miner reported solid performance in the first quarter of 2009, including major production growth in iron ore, crude oil products and manganese. But, despite confidence in long-term demand for raw materials from developing economies, the spectacular appetite of the past few years is noticeably slowing. "China has not been immune to the global slowdown," the company said. "We expect volatility and uncertainty to continue in the short term."

BHP is no lone voice. Last week, rival Rio Tinto sent mining stocks plunging when Tom Albanese, the chief executive, described the Chinese economy as "pausing for breath", and said the company was revising its capital spending plans and reducing its target to make $10bn-worth of disposals by the end of the year.

Macroeconomic indicators point in the same direction. China's National Statistics Bureau said this week the economy grew by 9 per cent in the third quarter of 2008, its slowest expansion in five years and much lower than the 10.9 per cent rate the year before. The International Monetary Fund earlier this month predicted growth of 9.7 per cent this year and 9.3 per cent in 2009.

Share prices across the sector closed down yesterday. BHP Billiton was off 9 per cent, Xstrata down by 13.8 per cent, Kazakhmys by 15.5 per cent, Lonmin by 5.9 per cent. But while the culprit was still China, unlike last week's Rio Tinto-inspired rout, it was the knock-on effect of falling commodity prices – themselves brought down by the expectation of weakening demand – that caused the problems for the miners.

"Commodity prices have really come back in the last couple of days, relating to the macroeconomic slowdown, and that is pulling equities down," Simon Toyne, an analyst at Numis, said. "China is the engine of growth for the sector, so any question mark there is important. But Chinese urbanisation has not been cancelled, and as people are getting used to the concept of growth slowing, now it is more about when that turns around."

Meanwhile, the commotion over BHP's proposed takeover of Rio Tinto, which the latter has rejected as too low, continues. Rumours in Australia overnight that BHP was about to increase its bid, or a Chinese company come in with a competing offer, pushed Rio Tinto's shares up strongly in the Australian market. In London today, following yet more rumours – this time that the EU Competition Commission was taking a softer line than expected – left Rio Tinto down by just 6.68 per cent, considerably less than BHP.

Both developments were grist to the mill for Rio Tinto. A spokesman said: "We are as clear as we ever have been that the all-share pre-conditional offer is insufficient. Rio Tinto is an excellent business with a favourable mix of commodities and low-cost assets. We will outperform both in a downturn and when the market recovers."