BHP Billiton Base Metals

India on the global map?

International Copper Symposium – ICDC
The Emergence of India on the Global Map
11th March 2004
Mining & metals companies have traditionally destroyed value

EVA (US$ million) and EROC (%) - All Mining and Metals
15000 6
Cumulative EVA (US$56B)
Economic Value Added (EVA) - US$M

Economic Return on Capital (EROC) - %)

10000 Net Assets (2001) US$223B 4
EV (2001) US$289B
5000 EROC (1991-2001) (2.7)% EVA 2

0 0

-5000 -2

-10000 -4

-15000 EROC -6

-20000 -8
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

EROC (%) = ROIC – WACC Aggregate data for >200 mining and metals companies (excludes former East Bloc)
EVA ($) = Net Assets x (ROIC – WACC) Source: CRU
This presentation addresses two high level aspects of
copper demand…

1. Intensity of use

2. India’s growth path compared to China

 Copper intensity of global GDP has increased again
since the 1980s
World Copper Consumption and GDP Per Capita Despite unpredictable
1950-2003
major global economic
130
Emerging Market economic
growth. China’s shocks, copper
2000
120
industrialisation gathers pace intensity of GDP
Post-WWII emergence and
growth of Japan. US and shows a strong,
1979
110 European consumer booms 1973
1997 persistent upward
Metal Intensity Per Capita (1985=100)

1990 trend
100
1966
1982 2003
1993 Note: A steeper slope represents
90 2.5 kg Cu per person
a stronger rise in use of copper in
relation to economic activity – a
80 gentle slope indicates lower
‘intensity of use’
1955 1973 and 1979 Oil Price Shocks Collapse of Soviet
70 and 1982 Inflationary Recession central economy and
Major focus on reduced unit use 1993 recession
of metals, including copper
60
Source: BHP Billiton,
1950
1.2 kg Cu per person Macquarie Research
50

y = 0.6038x + 42.324 R2 = 0.8502

40
40 50 60 70 80 90 100 110 120 130 140
US$GDP(1995) Per Capita (1985=100)
Industrialising countries have followed two distinctive
intensity paths…which path are they following today?
Copper Demand Intensity of GDP (1950-2002)
30
Refined Cu Consumption per Capita

USA
25

Japan
20
(kg/person)

15

10

0
0 5000 10000 15000 20000 25000 30000 35000 40000
GDP per Capita (2002 US$/person)
Source: BHP Billiton
Industrialising countries have followed two distinctive
intensity paths…which path are they following today?
Copper Demand Intensity of GDP (1950-2002)
30
Refined Cu Consumption per Capita

USA
25 South Korea
Taiwan
Japan
20
(kg/person)

15

10

0
0 5000 10000 15000 20000 25000 30000 35000 40000
GDP per Capita (2002 US$/person)
Source: BHP Billiton
 Industrialising countries have followed two distinctive
intensity paths…which path are they following today?
Copper Demand Intensity of GDP (1950-2002)
30
USA
Refined Cu Consumption per Capita

25 South Korea
Taiwan
Japan
20
(kg/person)

15

10

India’s 0
position 0 5000 10000 15000 20000 25000 30000 35000 40000
today GDP per Capita (2002 US$/person)
Source: BHP Billiton
China’s
position today
 Although India’s copper consumption has grown strongly
in recent years, it has not matched China
Asia, excluding Japan, is responsible for virtually all of the growth in world
refined copper consumption (‘first use’ of copper) in the past 20 years, driven by
Korea and Taiwan…and more recently China
Demand for Refined Copper (excl. direct melt scrap)* * Note: Does not
accurately reflect the
16000 ‘final’ consumption of
Market Share in: 1970 1980 1990 2003 copper in copper
China 3% 3% 6% 20% containing products.
14000 Japan 11% 12% 15% 8% Data unavailable for
‘final consumption’
Other Asia 1% 3% 11% 19% before 1990
'000 tonnes Refined Cu

12000 15% 19% 31% 47%

Asia now
10000 accounts for
almost half
CIS+E. Europe
8000 world copper
consumption
6000 W. Europe
but India
Other Asia
claims less
4000
North America than 2% of
2000 Japan this share
China Source: CRU
0
1960

1965

1970

1975

1980

1985

1990

1995

2000
Is India another China waiting in the wings?
Similar land area and population…but India’s economy not yet at
‘lift off’ and dominated by Agriculture and Services…
India China
Population (mill.) 1,031 1,283
GDP (US$B) 515 1,281
GDP Per Capita (US$) 500 1,000
Average % p.a. GDP Growth (10 Years) 6 9

GDP Components (%)

- Agriculture 23 14
- Industry 27 59
- Services 50 27

Private Consumption (US$B) 329 588

Private Cons’n Per Capita (US$) 320 460
National Savings Ratio 18 40
Net FDI (US$B) 4 46
External Debt (% of GDP) 19 11
Source: UBS
How does India compare?
Export focus and manufacturing
India’s
manufacturing
sector contributing
less than 16% of
GDP – little change
in 20 years…

Source: UBS Asian Economic Perspectives

…and with a relatively low export

orientation compared to China and the
Asian Tigers.
High levels of protection (import tariffs)
have created a stronger focus on the
domestic market (but demand is also
weakened)
How does India compare?
Barriers to manufacturing market development…
Poor Infrastructure… Regional Ranking on Power and Other Infrastructure
10
India lags China in power, transport, and EIU Rating out of 10
other key infrastructure required to 9
support industrial development. Telecom
sector has been deregulated, but other 8
sectors characterised by inefficiency, high 7
costs and rigid regulation.
6
China has much ground to make up in this
area too, but is spending heavily on 5
improving infrastructure
4
…But pending improvement? 3
Plans under way in India for major road
improvements, port deregulation and 2
potential easing of impediments to more 1
efficient power generation and
transmission 0
Japan Taiwan Korea Thailand China India

Source: Economist Intelligence Unit

How does India compare?
Management…pros and cons
More prudent capital management?

Source: UBS – Asian Economic Perspectives

But further reform needed…
Cutting of import duties slowly under way…simplifying and cutting
indirect taxes…opening up reserved industries to benefit from
economies of scale, more flexible work practices
This presentation addresses two high level aspects of
copper demand…
1. Intensity of use
• Continued growth depends on China and India
• It is still unclear how these markets will develop
2. India’s growth path compared to China
X India’s manufacturing is less export orientated than China’s
X Infrastructure of both countries is poor, but China improving
9 Management and technical strength
9 Recent trends: Tariffs, roads, ports
This presentation addresses two high level aspects of
copper demand…
1. Intensity of use
• Continued growth depends on China and India
• It is still unclear how these markets will develop
2. India’s growth path compared to China
X India’s manufacturing is less export orientated than China’s
X Infrastructure of both countries is poor, but China improving
9 Management and technical strength
9 Recent trends: Tariffs, roads, ports
But, things never look better than from the top of a cycle
Demand shocks? Irrational supply? Technology?