30 October 2018
[Check against delivery]
Good morning ladies and gentlemen. It’s a great pleasure to be here today. It’s always good to be here in Melbourne – BHP’s home for more than 130 years.
BHP is proud to have been involved with IMARC for a number of years. However, this year is my first time attending the event. It’s fantastic to see the Australian and the international mining and resources community so well represented. I‘ve already had the opportunity to reconnect with some old friends, and I know I will have the chance to make many new connections later.
My career began in The Netherlands, in the Marketing and Trading Division of Billiton back in 1994. I often think that was my commercial calling because of my Dutch heritage. After all, it was back in the 17th century that Dutch merchants fostered lucrative new trade routes between Europe and Asia. These vessels transporting silk, porcelain and tea to Amsterdam, the main European trading centre for luxury goods from the East.
The Netherlands was built on trade. And as you can tell from my accent, trade is therefore in my blood. Now, as Chief Commercial Officer at BHP, it is my team’s job to generate value right across BHP’s global supply chain.
Our Marketing and Supply teams are the link between BHP’s global operations, our customers, and our suppliers. Our teams operate on both sides of the same commercial coin – maximising every dollar that comes in and doing the same for every dollar that goes out.
We secure sales and co-ordinate logistics to deliver BHP’s high quality iron ore, coal, copper and other commodities from our mines to our customers around the world.
And on the Supply side, we buy the goods and services our massive operations require to mine our products in a way that is safe, productive and sustainable. We create partnerships with both global suppliers and local businesses in our communities – from the Pilbara to the Atacama Desert in Chile, from Singapore to China. This extends beyond the standard buyer/seller relationship.
One of the greatest contributions we can bring to the places where we operate is to engage our suppliers in our challenges, stimulating innovation, and helping to grow businesses to create shared value for local economies.
In this area, I am really proud of the work we’ve done here in Australia to incentivise suppliers to make heavy equipment more accessible for women. It is part of a broader ‘more women, more work’ initiative where we have rewarded our suppliers with more work if they help us to be more inclusive.
Today we released a Prospects blog on our supply innovation program in Chile, which highlights another example of how we’re creating shared value with our suppliers. If you’re not already subscribed to Prospects via our website I would encourage you to do so.
Another positive is the contribution we make to regional economies through the goods and services we purchase. We really value the relationships with our local communities.
Let me give you an example. Through our targeted local buying program, we provide a platform for local businesses to easily supply goods and services to BHP operations. This is a unique model and we know that these businesses enjoy the certainty of supplying us through this program.
Since its launch in Queensland in 2012, the program now reaches across most of Australia. More than 1,000 local suppliers have registered and over A$240 million of local business expenditure has been approved.
In order to maximise value, we must be across the complex market dynamics that impact BHP, our customers and our suppliers. In the current global environment - that can be quite a challenge! The fundamentals of demand and supply inform our long-run outlook for commodity markets and key cost drivers for procurement.
In the 1960s, a small team of BHP analysts came together to make a bold prediction on the future of steel demand. As a result of those insights, we established our first iron ore mine at Mt Whaleback in Western Australia. Fifty years on, we have now shipped over one billion tonnes of iron ore to both Japan and China.
Operating in a global environment
So, let’s take a quick look at how we see the markets today.
Despite the market volatility triggered by geopolitical challenges, the global economy has been robust. Our portfolio of commodities performed well and our operating performance helped deliver strong financial results for BHP.
For the year ahead, an ongoing appetite for steel-making raw materials in China and India will drive demand for iron ore and metallurgical coal. China’s increasing focus on ‘ecological civilisation’ has prompted the steel industry to pursue cleaner capacity that can meet increasingly strict emission standards. This structural change will sustain wide quality differentials in both iron ore and metallurgical coal.
Turning to oil and copper, we have seen near term support in the oil market on the back of
growth in demand and especially disruptions to supply from the collapse of the Venezuelan economy and the expected US sanctions against Iran.
In particular, short term copper prices remain linked to global policy uncertainty, particularly around trade. Medium term fundamentals for both, oil and copper, remain sound.
So while we are optimistic, there are challenges ahead. And in the current environment, we’ve revised down our expectation of world GDP growth slightly for 2019 and 2020.
Trade at a critical juncture
BHP has never shied away from sharing our views on trade policy and the importance of open and inclusive global markets.
Our modelling indicates that the negative impact of Sino-US trade protection on Chinese GDP growth will fall in the range of a half (0.5) to three quarters (0.75) of a percentage point.
The expected gross negative impact on the US also falls within that range. Which confirms that the trade protection will create a lose-lose outcome. We have not yet seen any material impact on our business
It is imperative that business and governments strengthen their cooperation and stand together as steadfast supporters of open markets and stability in order for the global economy to thrive.
I will leave my remarks there and I look forward to taking Mark’s questions.