BHP Billiton battles China
The BHP Billiton share price has fallen over the past days from a vertiginous 1880 to a still rising 1663. It was 948 not much more than a year ago, when I wrote that such a low share price could not last as that company had 40 per cent of the world's...
The BHP Billiton share price has fallen over the past days from a vertiginous 1880 to a still rising 1663. It was 948 not much more than a year ago, when I wrote that such a low share price could not last as that company had 40 per cent of the world's uranium under its control.
Why should there be a brake on the globalised world financial situation, when a Chinese economy is expanding at the remarkable rate of 10 per cent per year? It has an endless appetite for the iron ore and copper which the famous Australian mining companies are pouring into its state capitalist jaws. This Friday, Aluminium Corporation of China and Alcoa Corporation bought 12 per cent of Rio Tinto Group, countering the BHP proposal to buy the mining company. There is no better education for the rising Maltese financial class than studying the vicissitudes of a battle like that of BHP for Rio, which is certainly the biggest company takeover attempt in history.
These are great days for money trading and for those who aspire to become money traders. The reason why BHP wants to take over Rio is because it wants to build up an iron ore monopoly position which would control a third of its world market. This is not saying anything about aluminium, coal, gold and diamonds.
The fast expanding Chinese economy is being hurt by a three-fold gain in commodity prices since 2002. This happened in spite of the fact that Chinese state capitalism enjoys considerable monopsony powers which are much stronger than the BHP and Rio duopoly powers. BHP is fully conscious of the powers of Chinese finance. These are free of the recent $250 subprime losses of the West's banks.
BHP has therefore been struggling to turn the BHP-Rio duopoly into a monopoly, by taking over its sister company. It would be consequently in a better position to fight Chinese monopsony powers, that is the power of Chinese communist state capitalism to keep commodities prices low by being the major buying power.
China is doing its best to lower the economic bargaining power of Australia, and last Friday it certainly stole a march, so much so that the day's Financial Times had no mention of anything likely to happen on that day. Financial manouvres are like with war games. Surprise is the essence of success. Bloomberg reported the deal by saying: "It's over 10 per cent, so a blocking stake." Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd in Melbourne, said: "It might stall or slow the whole BHP offer. It might make them think twice as now there's a major shareholder that would be looking to extract full value."
Anybody holding BHP and Rio shares should be pleased with themselves. They have risen almost tenfold during these last ten years, and this money game is by no means over.
This article is cultural and not advisory. John Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S&P (e-mail: johnazzopardivella@hotmail.com)