AUSTRALIA’S high-cost, low-productivity economy will be untenable in the coming era of slower Chinese growth, according to BHP Billiton chief Marius Kloppers.
Nanjing Night Net

In an address to the Brisbane Mining Club, Mr Kloppers said mining companies could no longer afford to choose volume growth at the expense of rising costs given commodity prices were moderating and the sector had entered a period where cost cutting and productivity improvements would take precedence.

Mr Kloppers said productivity was the best indicator of long-term wealth in a society, but Australia’s rates had been declining since the late 1990s and had slipped into reverse for many of the past eight years.

”This should be a concern for all of us, because as markets revert to more sustainable levels, our relative competitiveness will be the key to maintaining the economic advantage our resources endowment naturally provides,” he said.

Mr Kloppers reiterated his view that no company could consider investing in Queensland’s huge coal sector given the current low prices, high costs and rising royalty rates. But he went further to suggest new investment in any part of the mining sector looked unlikely in current conditions.

”The next round of minerals investments in Australia will, almost without exception, be captured only if costs are decreased and productivity is improved. Companies and governments need to work in partnership towards attracting the next rounds of investments,” he said.

The comments will not surprise the thousands of former employees whose jobs have already been cut this year by BHP, and other miners such as Xstrata and Rio Tinto.

BHP has previously warned the ”tailwind” of high commodity prices was no longer blowing at the back of Australian miners, and Mr Kloppers said the gap between supply and demand for many commodities was closing fast.

”What we are now witnessing is the rebalancing of supply and demand and a progressive recalibration of prices back to long-term sustainable pricing levels,” he said. In a swipe at Queensland’s decision to increase royalties, Mr Kloppers said it was unfortunate the commodity slowdown had coincided with rising imposts from government.

He listed regulatory reform alongside stability in taxation and workplace laws at the top of the sector’s wish-list.

BHP has attempted to buffer itself from a slowdown in iron ore and coal by expanding other divisions, particularly petroleum, the focus of yesterday’s September-quarter results.

The petroleum division produced a record volume of petroleum products during the three months. Iron ore production was lower, while coking coal production dramatically outstripped volumes sold. Copper production was higher but below analyst expectations.

BHP closed 38¢ higher at $33.45.

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