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Sydney, Aug 19, 2008 (ABN Newswire) - So what lies ahead in the coming year, and a bit more for the world's major mining group?
How does it see demand and prices, and does the company still believe as strongly in the commodities boom, especially where China is concerned, as it has done in the past few years?
The above graph shows the Australian dollar and the Chinese currency and they tell two stories: the Aussie's weakness in the past month reflects the new belief that the bloom is leaving the commodities boom; the Chinese currency reflects its appreciation, which now seems to have stopped as the Government tries to keep the economy growing strongly.
If that works, then despite some slow growth in coming months, there will be a revival in the value of the Aussie dollar, and that will be reflected in the performance by BHP (and its share price).
But has the recent rapid drop in commodity priced, led by oil, the company's major profit centre in 2008, caused any second doubts?
From BHP Billiton's point of view the coming year has two major tasks to do.
The first is to complete or abandon the huge takeover for rival Rio Tinto.
There's not much the company can do until the European Commission rules on its 3.4 share $160 billion offer, probably around November.
BHP's CEO, Marius Kloppers said in yesterday's profit briefing that the offer was value accretive for both sets of shareholders.
"We believe the deal that we have on the table is value accretive for both sets of shareholders," Mr Kloppers said on a conference call.
Mr Kloppers said that the combination of BHP Billiton and Rio made "more sense than ever".
Mr Kloppers said the company was focused on the Rio Tinto proposal and scotched speculation that the group might move into platinum following Xstrata's $US10 billion bid for Lonmin.
BHP can continue to campaign publicly in favour of its offer, but until the EC rules, its powerless.
The second is to navigate the company through the rapids of what is looking like a volatile time, with oil prices down, along with gold, copper, lead, zinc and nickel. Iron ore and coal remain high, but that could change if the bloom goes out of China's boom.
BHP is confident that won't happen in the short or longer term: it sees greater volatility in prices, but no collapse in global price levels, even with the softening we are seeing in major economies.
But it does see periods of weakness: not a turnaround in belief, more an acceptance of the current realities.
Belief in the commodities supercycle is alive and well in the boardroom and management offices of the company.
The big realignment of commodities and the US dollar is based on worsening economic prospects outside America with Europe, Japan and possibly China weakening.
But BHP is sanguine. The company sees the strong possibility of slow growth in many western economies in coming quarters, but is confident the emerging major economies of China, brazil, India and Russia will not succumb to the slowdown.
"The global economy has remained resilient in the face of significant structural weaknesses in developed economies. The continuing massive industrialisation in China is providing solid support to the global economy.
"Over the past financial year there has been considerable weakening in most major developed economies.
"The deflation of asset values within these economies has led to a reduction in wealth effect for consumers.
"This appears to have ended the past decade's unsustainable consumer debt driven economic growth, particularly in the US.
"However, a direct spill over into emerging market economies has remained largely contained.
"Emerging market economies have contributed more than their industrial counterparts to global growth since the year 2000.
"Led by China and India, economic growth in these economies has been strong with solid support from growth in domestic demand and strong trading activity with other emerging market economies.
"We expect short term global economic growth to slow as developed economies experience further weakening in the coming quarters.
"Liquidity is likely to remain low, and risk premia high for some time into the future.
"Rising inflation, particularly in food and energy, alongside weakening economic growth has restricted the flexibility of central banks to inject liquidity and stimulate their economies.
"Higher inflation will also have a likely negative impact on emerging market economies through their adoption of tighter monetary policies.
"However, emerging market economies should remain relatively strong on the back of continued domestic infrastructure investment and regional trade.
"While short-term disruptions may occur, we expect that their long-term economic growth will remain robust as they continue on the path to industrialisation.
"The 2008 financial year has seen higher average prices for most of our major commodities, than in the prior year.
"Demand for raw materials in the emerging market economies has remained strong. In particular, China remains a key driver of global commodity consumption through its position as a net importer of raw materials.
"China's competitiveness and ability to innovate in downstream processing has been demonstrated again with sustained nickel pig iron production.
"In light of differing activity for the developed and emerging market economies, there have been mixed spot prices for key commodities.
"In particular, bulk and energy related commodities have tended to outperform the LME traded metals.
"The effects of current weaknesses in the developed economies on demand for our commodities should be minimal driven by ongoing strong demand from the emerging economies. Meanwhile, supply side pressures remain high.
"This has led to overestimation of the supply side response, and thus, price outcomes regularly being underestimated by industry observers.
"In the short-term, we expect prices to remain high relative to historical levels, albeit with higher volatility.
Looking to the longer term, demand for our commodities is expected to remain strong.
"We expect that higher long-run raw materials and energy prices and stronger producer currencies should place upward pressure on industry supply costs, and hence, prices of minerals commodities.
"We continue to expect that commodity prices will be driven by long-run marginal cost of supply.
"The world is confronting supply constraints for energy and mineral resources.
"While there are enough resources to satisfy the world's appetite, the industry has not moved quickly enough to meet the growth in demand.
"We are continuing our efforts to meet these needs through a deep inventory of growth options. We have an abundance of tier one resources in fiscally stable regimes that provide us with a unique set of options to deliver decades of lower risk brownfield growth.
"We also have an extensive experience operating in emerging resource regions and the capability to capture additional opportunities as they arise.
"This experience enables us to continue to build and strengthen our position for long term value creation."
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