Identifier
Created
Classification
Origin
09MELBOURNE121
2009-11-17 22:15:00
CONFIDENTIAL//NOFORN
Consulate Melbourne
Cable title:
BHP BILLITON CEO ON NEGOTIATING WITH CHINA
how-toVZCZCXRO9664 RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB DE RUEHBN #0121/01 3212215 ZNY CCCCC ZZH R 172215Z NOV 09 FM AMCONSUL MELBOURNE TO RUEHC/SECSTATE WASHDC 5018 INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION RUEHNE/AMEMBASSY NEW DELHI 0039 RUEHPT/AMCONSUL PERTH 1628 RUEATRS/DEPT OF TREASURY WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 MELBOURNE 000121
NOFORN
SIPDIS
E.O. 12958: DECL: 11/17/2019
TAGS: EIND ECON ETRD EINV CH AS
SUBJECT: BHP BILLITON CEO ON NEGOTIATING WITH CHINA
REF: MELBOURNE 66
MELBOURNE 00000121 001.2 OF 002
Classified By: Justin Kolbeck, pol/econ officer for reason 1.4 (d)
Summary
-------
C O N F I D E N T I A L SECTION 01 OF 02 MELBOURNE 000121
NOFORN
SIPDIS
E.O. 12958: DECL: 11/17/2019
TAGS: EIND ECON ETRD EINV CH AS
SUBJECT: BHP BILLITON CEO ON NEGOTIATING WITH CHINA
REF: MELBOURNE 66
MELBOURNE 00000121 001.2 OF 002
Classified By: Justin Kolbeck, pol/econ officer for reason 1.4 (d)
Summary
--------------
1. (C/NF) The CEO of the world's largest mining company sees
another difficult year ahead for ore negotiations with the
Chinese. BHP Billiton, which provides China with a growing
portion of its imported ores, expects a slow global recovery,
with any pickup in the U.S. economy being offset by the fact
that China has finished restocking supplies of key ores. End
Summary.
Turbulent Negotiations Ahead
--------------
2. (C/NF) Marius Kloppers, BHP Billiton's CEO, told Charge
and Consul General on November 5 that he expects another
difficult year in negotiating with the Chinese on ore prices.
The Chinese Iron and Steel Association (CISA) is pushing
again for below-contract prices on ores, but Kloppers hopes
that CISA will settle by default on prices similar to those
agreed on with Japanese firms, as it did in 2009. BHP
Billiton has had some dealings with individual Chinese steel
mills, but Kloppers said BHP negotiates most frequently with
state-owned enterprises, which are able to wield enormous
clout by closing ranks and presenting a unified front on
pricing. (Comment: Kloppers has long campaigned to move the
Chinese away from contract-based pricing to a market-based
model. He noted that achieving this goal is still a ways
off. End comment.)
3. (C/NF) Uranium is a small, but important part of BHP's
business. Kloppers said he would schedule expansion on the
Olympic Dam Mine - the world's largest uranium deposit - to
be commensurate with rising world demand. China's nuclear
program will be an important customer for BHP's uranium
business and Kloppers said that he was impressed by how
quickly and effectively the Chinese have been able to build
state-of-the-art nuclear power plants. The secret, he said,
has been a Chinese focus on designing easily replicable
facilities. Kloppers went on to say that the Rudd
government's ongoing refusal to sell India uranium until it
signs the Nuclear Non-Proliferation Treaty does not impact
BHP's business. "As long as someone can sell to the Indians,
the world market will continue to expand, which helps us," he
said.
Bearish Expectations on the Global Economy
--------------
4. (C/NF) Kloppers, who is cautious by nature, said he
expects the global economy to recover at a slow pace. Even
if the U.S. economy recovers faster than expected, the
resulting boons to the global economy will be offset by the
fact that the Chinese have finished restocking their ore
stores, leading to a short-term reduction in global demand.
Kloppers was worried that loose monetary policy and low
interest rates in the United States were inflating commodity
prices and creating bubbles in the Australian housing and
equities markets, noting that stock prices have far outpaced
any reasonable projections of earnings.
Australia's Climate Change Legislation
--------------
5. (C/NF) Kloppers described Australia's Carbon Pollution
Reduction Scheme (which goes before the Senate for a second
time this month) as simply a "tax on exports." While this is
a refrain we have heard from other businesspeople, Kloppers
pointed out that Australia's legislation is the only one in
the world that will tax fugitive emissions which are released
during coal mining. He said this hits BHP in two ways, since
the company is taxed on emissions released during production,
and will not obtain government subsidies that will be given
to power plants under the proposed legislation. By 2020, BHP
expects it will be paying approximately US $550 million in
carbon taxes each year, 50 percent of which will come from
fugitive emissions.
Comment
--------------
6. (C/NF) Kloppers has a keen interest in learning everything
he can about the Chinese and is not shy about asking us for
our impressions. His long-term campaign to move the Chinese
MELBOURNE 00000121 002.2 OF 002
toward market pricing on ores seems to be making some
progress, though Kloppers was frustrated by the Chinese
tendency "to want to control everything" in their domestic
economy.
THURSTON
NOFORN
SIPDIS
E.O. 12958: DECL: 11/17/2019
TAGS: EIND ECON ETRD EINV CH AS
SUBJECT: BHP BILLITON CEO ON NEGOTIATING WITH CHINA
REF: MELBOURNE 66
MELBOURNE 00000121 001.2 OF 002
Classified By: Justin Kolbeck, pol/econ officer for reason 1.4 (d)
Summary
--------------
1. (C/NF) The CEO of the world's largest mining company sees
another difficult year ahead for ore negotiations with the
Chinese. BHP Billiton, which provides China with a growing
portion of its imported ores, expects a slow global recovery,
with any pickup in the U.S. economy being offset by the fact
that China has finished restocking supplies of key ores. End
Summary.
Turbulent Negotiations Ahead
--------------
2. (C/NF) Marius Kloppers, BHP Billiton's CEO, told Charge
and Consul General on November 5 that he expects another
difficult year in negotiating with the Chinese on ore prices.
The Chinese Iron and Steel Association (CISA) is pushing
again for below-contract prices on ores, but Kloppers hopes
that CISA will settle by default on prices similar to those
agreed on with Japanese firms, as it did in 2009. BHP
Billiton has had some dealings with individual Chinese steel
mills, but Kloppers said BHP negotiates most frequently with
state-owned enterprises, which are able to wield enormous
clout by closing ranks and presenting a unified front on
pricing. (Comment: Kloppers has long campaigned to move the
Chinese away from contract-based pricing to a market-based
model. He noted that achieving this goal is still a ways
off. End comment.)
3. (C/NF) Uranium is a small, but important part of BHP's
business. Kloppers said he would schedule expansion on the
Olympic Dam Mine - the world's largest uranium deposit - to
be commensurate with rising world demand. China's nuclear
program will be an important customer for BHP's uranium
business and Kloppers said that he was impressed by how
quickly and effectively the Chinese have been able to build
state-of-the-art nuclear power plants. The secret, he said,
has been a Chinese focus on designing easily replicable
facilities. Kloppers went on to say that the Rudd
government's ongoing refusal to sell India uranium until it
signs the Nuclear Non-Proliferation Treaty does not impact
BHP's business. "As long as someone can sell to the Indians,
the world market will continue to expand, which helps us," he
said.
Bearish Expectations on the Global Economy
--------------
4. (C/NF) Kloppers, who is cautious by nature, said he
expects the global economy to recover at a slow pace. Even
if the U.S. economy recovers faster than expected, the
resulting boons to the global economy will be offset by the
fact that the Chinese have finished restocking their ore
stores, leading to a short-term reduction in global demand.
Kloppers was worried that loose monetary policy and low
interest rates in the United States were inflating commodity
prices and creating bubbles in the Australian housing and
equities markets, noting that stock prices have far outpaced
any reasonable projections of earnings.
Australia's Climate Change Legislation
--------------
5. (C/NF) Kloppers described Australia's Carbon Pollution
Reduction Scheme (which goes before the Senate for a second
time this month) as simply a "tax on exports." While this is
a refrain we have heard from other businesspeople, Kloppers
pointed out that Australia's legislation is the only one in
the world that will tax fugitive emissions which are released
during coal mining. He said this hits BHP in two ways, since
the company is taxed on emissions released during production,
and will not obtain government subsidies that will be given
to power plants under the proposed legislation. By 2020, BHP
expects it will be paying approximately US $550 million in
carbon taxes each year, 50 percent of which will come from
fugitive emissions.
Comment
--------------
6. (C/NF) Kloppers has a keen interest in learning everything
he can about the Chinese and is not shy about asking us for
our impressions. His long-term campaign to move the Chinese
MELBOURNE 00000121 002.2 OF 002
toward market pricing on ores seems to be making some
progress, though Kloppers was frustrated by the Chinese
tendency "to want to control everything" in their domestic
economy.
THURSTON