What on earth is going on in China? Even top mining CEOs can't agree

BHP Billiton's Andrew Mackenzie (left) and billionaire mining rival Ivan Glasenberg (right).
BHP Billiton's Andrew Mackenzie (left) and billionaire mining rival Ivan Glasenberg (right).PHOTO: BLOOMBERG

LONDON (BLOOMBERG) - What on earth is going on in China?

Two of the biggest mining companies feeding the country's appetite for raw materials can't even agree on whether there's an answer to the question.

Andrew Mackenzie, head of BHP Billiton Ltd., is bullish on his ability to comprehend a country that consumes more commodities than any other - and whose economic woes have shaken markets around the globe this week.

"We don't find China impossible to read," Mackenzie, chief executive officer of the world's biggest mining company, said Tuesday. "We've been at this game for decades."

His certainty conflicts with billionaire mining rival Ivan Glasenberg's admission last week that he couldn't read the world's second-largest economy right now and neither could anyone else.

Investors dizzy from this week's turmoil in global markets may sympathize.

The Chinese government's reputation for managing growth now looks threadbare as the nation heads for the slowest expansion since 1990, and its stock market reels from the steepest four- day rout in almost two decades.

Amid the resulting shocks to international markets, raw materials and mining companies have been the hardest hit, with commodity prices tumbling to their lowest levels since the fallout from the global financial crisis in 2009.  Glencore Plc, headed by Glasenberg, has lost half its value in two months.

"At the moment none of us can read China," he said Aug. 19. "None of us know what is going on there and I'm yet to find the guy who can predict China correctly. China in the first half was a lot weaker than anyone expected."

That deterioration comes after the managers of the world's biggest metals producers spent billions increasing mine capacity to feed Chinese demand.

"They are cosmonauts, who completely forgot about gravity," said Kirill Chuyko, head of equity research at BCS Financial Group in Moscow.

China's weakening economy means its consumption of metals will slow and its demand for steel has already peaked, Mr Chuyko said. "On the other hand, what would you say to your shareholders?"

A gauge of Chinese manufacturing fell last week to the lowest in more than six years, following weaker-than-expected reports on investment, industrial output, retail sales and exports in July.

Such figures don't faze Mr Mackenzie, even on the day BHP announced a 52 pe rcent plunge in full-year profit.

"Changes that we see in China at the moment are things that we've foreseen for several years, that China's rate of growth would slow," he told reporters after the results. "But we still think it will be 7 per cent this year."

Other CEOs are also sanguine. Chinese demand for all of the commodities produced by Rio Tinto Group will keep increasing in the long-term, Sam Walsh, head of the world's second-biggest miner, said on Aug. 6.

Rio sees Chinese steel production, relying in part on the company's supplies of iron ore, growing to 1 billion tons a year by 2030.

"We don't see China having a hard-landing type situation as some are predicting," Richard Adkerson, CEO of Freeport-McMoRan Inc., the largest publicly traded copper miner, said in July. "We see requirements for copper growing in absolute terms and China continuing to be a significant consumer."