What’s going on with BHP Billiton? The world’s biggest miner bid for a share in a Chilean copper mine this year and is exploring for offshore petroleum in Australia and the Gulf of Mexico. Isn’t the commodities super-cycle meant to be over?
One way of thinking about it is to take a trip to your local supermarket. Its owners probably purchased a lot of steel, concrete and bricks while it was being built. Now the doors are open, they’re buying stuff that shoppers use every day: Food to fill their bellies, gasoline to fuel their cars, aluminum foil to wrap their lunch, electronic goods wired with copper, and stainless steel cutlery alloyed with nickel.
Similarly, the U.S. used up a lot of gravel, cement, and asphalt to build the Interstate Highway system. Once that was completed, the main beneficiaries were the oil companies powering the cars using it.
Sorting commodities into capital products that we use once, and operational ones we use again and again, helps make sense of what BHP Chief Executive Officer Andrew Mackenzie is up to.
Steel had a remarkable ride in recent years as China built 36 million new homes and a 19,000-kilometer high-speed rail network. Its main raw materials — iron ore and coal — took up more than half of BHP’s capital spending budget in 2010.
That era is past: China’s production of rebar for reinforcing concrete peaked in June 2014, and the floor space of buildings under construction slowed to its most sluggish pace since at least 2005 in August. But while building work soars with a strong economy and plunges when it weakens, oil demand has remained relatively consistent for a decade:
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