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Japan and BHP’s 50 year relationship

The Japanese and Australian economies have long enjoyed a complementary relationship. Fifty years on from our first sale of metallurgical coal to a Japanese steel mill in 1967, BHP and its Japanese customers remain at the forefront of the mutually beneficial commerce between the two countries.

This trade has helped Japan to successfully industrialise and rise to the rank of a first tier economic power. And it has helped Australia to raise the capital and gain the conviction required to develop its world class mineral and energy resources.

This enduring relationship is a powerful illustration of the joint benefits that concentrating on comparative advantage can bring. Those who believe that nations should turn away from trade and adopt more isolationist policies to meet their economic needs would do well to revisit the history of the Japan-Australia relationship.

Japan’s journey to become the first non-Western economy to reach wealthy nation status is remarkable. It is even more remarkable when one considers that its manufacturing led growth model was built almost entirely on the back of imported raw materials. As a consequence, for Japan, ‘the highest priority is placed on the stable, continuing and secure supply of energy, resources and food. These are core and unchangeable priorities.’1

Let’s return for a moment to 1967. The Japanese economy was on quite a winning streak. It was on the verge of quadrupling its immediate post war standard of living. GDP per capita growth had been compounding at more than 8% per year for one and a half decades. Its steel output per capita had reached 625kgs, a 14-fold rise since 19502.  Six years later, in 1973, it would reach 1,093kgs per head. That would prove to be the peak in terms of annual run rate. But it did not stop consuming steel. In 1967, the stock of steel in use in Japan was three tonnes per capita. That doubled to six in 1976, and it had doubled to 12 in 2002. It sits close to 14 today.  It is no surprise that the beginnings of the BHP-Japan commercial relationship in 1967 saw Japan vault into position as Australia’s number one export destination in 1967-68. It held that position for another four decades until 2008-09.

Needless to say, Japan was a major force in the seaborne trade in steel making raw materials throughout this period, and for long periods it was the leading player. Indeed, in 1985, Japan was for a time the world’s single largest importer of minerals and fuel products. It remains a key market for our iron ore, metallurgical coal, LNG, LPG, copper, energy coal, nickel and uranium today. In fact in 2014, we marked the shipment of our one billionth tonne of iron ore to Japan.

In addition to blazing a development trail for its Asian neighbours to follow, Japan was also a pioneer with respect to foreign direct investment. Japanese debt and equity financing has contributed much to the expansion of the iron ore industry in Western Australia; the metallurgical coal industry in Eastern Australia; the offshore gas industry in Australia’s north; and the copper industry in Chile. BHP itself has entered a number of joint ventures partnerships with Japanese firms, including Mitsubishi, Mitsui, Itochu and JFE.

As is well known, the Japanese economy has faced headwinds since the early 1990s. It has been mired in deflation for much of this period. Its enormous public debt and its aging population present major challenges for its policymakers as they look to revive growth and generate a healthy rate of inflation. However, what can be missed in this picture is that corporate Japan makes more money through the sales of their offshore affiliates than they do by exporting from the home archipelago. Japan continues to be an influential economic entity. And the nation’s thrifty household sector enjoys a regular flow of income from their assets abroad, while occasionally turning an asset class on its head as they change their positioning.

The BHP-Japan relationship is a strong one that has helped build nations and communities over fifty years. We look forward to marking our centennial in 2067.

A building block for growing nations – Japan and BHP’s 50 year relationship

1 Manual Panagiotopolous, CEO of Australia-Japan Economic Intelligence, comments to Australia’s Joint Standing Committee on Foreign Affairs and Trade, July 2011.

2 To put that in context, it took China 29 years to raise per capita steel output from 44kgs to 603kgs; Japan did that in just 17 years. And while we think Chinese steel is yet to peak, and its stock of steel in use will double from its current level of between 5-6 tonnes, it is very unlikely to approach the Japanese peak of 1093kgs achieved in 1973.

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