ASMALL table tucked away on page 177 of BHP Billiton's voluminous annual report shows just how much is riding on Asia staying on the rails as the Western world searches for ways to cut its debt load without killing economic growth.
It breaks BHP's revenue down by customer location, and it catalogues a rise by China and Asia in general to a point where they now account for half of everything BHP sells.
China-based customers paid BHP just under $US10 billion in 2008-09. They paid 34 per cent more in 2009-10, and in the year to June 30 lifted their payments by 53 per cent, from $US13.2 billion to $US20.3 billion.
Sales to customers in Asia, excluding China and Japan, also jumped by 60 per cent in the latest year, from $US9.8 billion to $US15.8 billion, and China and Asia, excluding Japan, wrote cheques totalling $US36 billion, just over 50 per cent of BHP's total revenue of $US71.7 billion.
China's share of BHP's revenue has now risen from less than 20? in the dollar to 28? in the dollar in three years, and China, Japan and the rest of Asia are the source of 62 per cent of total revenue.
North America's revenue share has stagnated at about 8 per cent since 2008-09, revenue from Britain has fallen by 66 per cent and Europe's contribution to BHP's revenue has fallen from 15.5 per cent to just under 12 per cent in three years.
BHP, Rio Tinto and the other miners that are feeding Asia's boom are outsized examples, of course. They are plugged much more directly into the Asian boom than the Western economies are generally. But a continuation of the rise of Asia that the revenue breakup in BHP's annual report highlights is central to the world's chances of getting out of the global crisis on anything like an acceptable time frame.
The IMF's biannual World Economic Outlook makes the same point obliquely, because its new, lowered estimate that the world will grow by 4 per cent this year is a melange of wheezing growth in the West and much stronger growth in the developing world, led by China.
The fund has cut its forecasts for growth in the United States this year from 2.5 per cent to 1.5 per cent and its growth forecast for next year from 2.7 per cent to 1.8 per cent. It has cut its forecast for European growth this year from 2 per cent to 1.6 per cent.
But it has only trimmed its forecasts for growth in the developing world, to 6.4 per cent this year and 6.1 per cent in 2012. It expects China to post growth of 9.5 per cent this year and 9 per cent next year, and expects Asia, excluding Japan, to grow by 8.2 per cent this year and 8 per cent in 2012.
The relatively mild cut in the IMF's forecast for growth in Australia next year from 3.5 per cent to 3.3 per cent is a byproduct of the two-speed global scenario: Australia slows as world growth slows, but continues through its resources sector to take a quality drip-feed from Asia, and stay in the black.
One problem, however, is that like everyone else, the IMF's economists aren't sure what's going on. The downgraded growth forecasts are in essence an admission by the IMF that it failed to detect a sudden Western world slowdown in the first half of this year, and in the report it spells out the policy conundrum without offering a solution.
The Western hemisphere must cut its debts before it can grow but cuts are themselves a drag on growth in the short term, and they might generate a recession if they are too aggressive.
Demand has to continue growing in China and the rest of Asia and stabilise in the West while Europe and the United States attempt the balancing act, and feedback from groups that are closer to the coalface than the IMF is mixed.
Rio Tinto chief executive Tom Albanese told investors in London on Tuesday night that the long-term outlook for commodities was strong as developed nations continued to industrialise, and BHP chairman Jac Nasser says much the same thing in BHP's annual report.
Albanese also said there had been a softening of demand in America and Europe. But in China, beyond Beijing and Shanghai, growth in the provinces is still running close to or just above 10 per cent, he says.
That needs to continue into 2012 to keep the IMF's growth forecasts on track.
FINANCIAL Services Minister Bill Shorten has moved away from the original "one size fits all" concept for the MySuper low-cost super product the government will introduce as the default option in Australia's superannuation system, and that looks like a sensible decision.
The structure unveiled yesterday retains MySuper as the new low-cost default option, but also allows variable pricing and tailored asset mixes in funds that cater to workplaces with 500 or more employees. The original, one-fee, one-asset-mix model could have penalised workers who have access to low-cost corporate super plans.
MySuper should work better as a result of the changes: they add to Shorten's growing reputation as one of the Gillard ministers who can deliver sound policy outcomes.
TPG's Australian boss, Ben Gray, will soon be debating long-distance with the Australian Tax Office about the tax status of profits TPG booked on Myer's 2009 float after being promoted to a new regional role with the US private equity behemoth.
From the end of the year, he will be managing partner and group head of TPG in Australia, Japan, Korea and south-east Asia, and will be based in Singapore.
The Maiden family owns BHP shares.
mmaiden@theage.com.au
Frequently Asked Questions about this Article…
How dependent is BHP on China and Asia for its revenue?
Very dependent. BHP’s annual report shows China and the rest of Asia (excluding Japan) now account for just over half of total revenue — about US$36 billion of US$71.7 billion. China alone increased payments from just under US$10 billion in 2008–09 to US$20.3 billion in the year to June 30, and China’s share of BHP revenue rose to about 28 cents in the dollar over three years.
What do BHP’s revenue trends mean for everyday investors in mining stocks?
BHP’s revenue breakup highlights that mining companies are plugged into Asia’s boom. For investors, that means extra exposure to Asian demand cycles: strong upside if Asia (especially China) keeps growing, but greater concentration risk if Asian growth slows. The report shows North America contributes only about 8% of BHP revenue while Asia drives the bulk of sales.
What is the IMF forecasting for global and Asian growth, and why does it matter for investors?
The IMF cut some Western growth forecasts but kept developing-world forecasts strong. It forecasts world growth of about 4% this year, expects China to grow roughly 9.5% this year and 9% next year, and sees Asia (excluding Japan) growing about 8.2% this year and 8.0% next year. For investors, strong Asian growth supports demand for commodities and resources stocks, while weaker Western growth raises the risk of uneven global recovery.
What did Rio Tinto’s CEO say about the outlook for commodities and demand in China?
Rio Tinto chief executive Tom Albanese said the long-term outlook for commodities was strong as nations industrialise. He also noted a softening of demand in America and Europe, but that growth in Chinese provinces outside Beijing and Shanghai was still running close to or just above 10%—a key support for commodity demand.
How could continued Asian growth specifically affect Australia’s economy and resource companies?
The article suggests a “two-speed” global scenario: Australia may slow as global growth softens, but its resources sector can continue to receive a steady ‘drip-feed’ of demand from Asia. The IMF only mildly trimmed Australia’s growth forecast (from 3.5% to 3.3% next year), indicating resources linked to Asian demand can help Australian investors and companies stay resilient.
What changes were made to Australia’s MySuper low-cost superannuation product and why should investors care?
Financial Services Minister Bill Shorten moved away from a one-size-fits-all MySuper model. The revised structure keeps MySuper as the low-cost default option but allows variable pricing and tailored asset mixes for funds serving workplaces with 500+ employees. Everyday investors should care because the change aims to avoid penalising workers who already have access to low-cost corporate super plans and to make the default product more flexible.
What is the TPG tax issue involving profits from Myer’s 2009 float and who is involved?
TPG’s Australian boss Ben Gray will be disputing with the Australian Tax Office over the tax status of profits TPG booked on Myer’s 2009 float. The article also notes Gray will be promoted to managing partner and group head of TPG in Australia, Japan, Korea and southeast Asia and will be based in Singapore from the end of the year.
Are there any disclosed shareholdings mentioned in the article that everyday investors should note?
Yes — the article discloses that the Maiden family owns BHP shares. Such disclosures can be useful for readers assessing potential conflicts or perspectives in commentary about companies.
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