BHP Billiton (ASX: BHP) recognises that there is still an “incredibly large opportunity to be captured” by Australia’s resources companies in China, although it can only be capitalized upon if the industry continues to improve its competitiveness.
The rate of GDP growth and the level of manufacturing and investment in China are all slowing over time, and many have questioned where the next bout of growth may come from. For instance, although BHP and other companies, such as Rio Tinto (ASX: RIO) or Fortescue Metals Group (ASX: FMG), are all ramping up their production levels of iron ore, demand is still expected to fall in the long term.
However, whilst China is transitioning into a more consumption based economy – whereby the middle-class is growing at a rapid rate and the “level of ‘true’ urbanization” is increasing – it is believed that demand for commodities that assist with the production of food could soar.
Potash is one such example. Despite pressure from shareholders to slow down its investment in the Jansen potash project, BHP committed to pumping a further US$2.6 billion into the project based on the long-term prospects of the fertilizer ingredient.
Speaking at the Australian National Conference on Resources and Energy, BHP President, HSEC, Marketing & Technology, Mike Henry, said “We believe the vast majority of the productivity challenge lies with industry and it is incumbent on employers to create an environment that inspires people to work smarter and rewards productivity improvements.”
Although it is the responsibility of those in the industry to drive productivity increases, Henry stated that the government also had a role to play in securing future investment as well as making the taxation system “more efficient and internationally competitive.”
BHP is certainly Australia’s most diversified miner and thus, represents a safer investment than others in the sector. However, at today’s price of $35.60 per share, the risks still outweigh the benefits and, as such, your money would likely be better served elsewhere.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.