LAUNCESTON, AUSTRALIA – It may seem like stating the obvious, but top miners BHP Billiton and Rio Tinto have said recently that they expect commodities prices to remain subdued.
While it is important that two of the world’s top three mining companies acknowledge what the rest of the market has believed for some time, what’s more important is how they respond to the realities they now face.
The first reality is that growth has slowed in China by more than the resource companies, and indeed most market analysts, expected when investment decisions on expanding capacity were made about five years ago.
The second reality is that those capacity expansions have created a structural over-supply for many commodities, particularly iron ore, coal and liquefied natural gas (LNG).
“The first thing I would say is we’re relatively bearish about the long-term projections for prices,” BHP Chief Executive Andrew Mackenzie said following a speech in Melbourne on Dec. 3.
“But, yes, I am optimistic about the long-term growth in demand, because I know the kind of resources it requires to push three, four billion people into the middle classes, particularly in Asia, and the kind of consumption that will come from that,” he went on to say.
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