BHP bullish on China

Demand for commodities set to rise

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 26, 2012 1:22 pm AEDT

The death of the mining industry has been greatly exaggerated. In fact, commodity demand will grow by 50 to 80% in the next 15 years, according to BHP Billiton (ASX: BHP) CEO Marius Kloppers.

Chairman Jac Nasser, speaking at the company's AGM, said that, as economic development continues, people seek to improve their living standards, including food, consumer and household products, which will in turn increase demand for natural resources. He added, "We do believe that further urbanisation and industrialisation in China will continue to support growth in demand for commodities. 250 million people will move to cities in China over the next 15 years, while the middle class will grow".

Mr Kloppers echoed the chairman's views, saying that China's future needs will change, and the focus will gradually switch to the next level of consumer goods, such as white goods, cars, heating and air-conditioning. This transition will result in an eventual moderation in demand for commodities such as iron ore and coal and an increase in demand for copper and energy products. Copper is used in many consumer goods, while oil and gas demand will increase on the back of increased proliferation of motor vehicles, and increased demand for electricity and power.

He also added that as the middle class grows, better diets will lead to a demand increase for fertiliser products such as potash.

BHP appears to have positioned itself perfectly for China's transformation – unlike Rio Tinto Limited (ASX: RIO), Fortescue Metals Group (ASX: FMG) or Atlas Iron Limited (ASX: AGO). BHP is well diversified, with exposure to iron ore, coal, copper, potash, oil and gas amongst others. Rio, Fortescue and Atlas Iron are all heavily exposed to iron ore, and their futures are now more heavily dependent on the price of that commodity than ever.

Foolish takeaway

Investors are constantly reminded that diversification is a good thing, and not to "put all your eggs in the same basket", as it increases the risks of losing some or all of your capital. BHP looks to be a much less risky bet than companies heavily exposed to one commodity.

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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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