BHP Billiton: Painting a Happy Face on Iron Ore
So you’re watching the Olympic Games and the usual suspects appear as advertisers. There’s Visa (V) , Coca-Cola (KO), McDonald’s (MCD)…and BHP Billiton (BHP)? Who are those guys, anyway?
It does seem unusual for one of the biggest mining companies to sponsor the Beijing Games.
BHP’s TV play was a not-too-subtle way for the company to get China’s approval for its long-running takeover bid of rival Rio Tinto (RTP), according to a Wall Street Journal article Tuesday.
Suddenly, you realize that BHP is in the propaganda business.
Well, what’s the difference between advertising and propaganda?
Advertising attempts to elicit a response. Propaganda aims to change your belief system.
As the Wall Street Journal reports, BHP’s ads were a way to build goodwill with the Chinese government and the country’s large steelmakers.
You would think that good, old-fashioned bribery, nepotism and womanizing would be enough. But BHP’s ads bring sugar-coated cronyism directly into our living rooms.
This is not the kind of propaganda you would expect from one of the big oil companies. At least they try to paint a happy face on their own companies with eco-friendly messages.
BHP Billiton is something else entirely. Its propaganda campaign is on behalf of its largest customer, the Chinese government.
Karen Wood, BHP’s chief people officer, told the Wall Street Journal that BHP decided to sponsor the Beijing Games mainly because “we thought that it was very important for us to demonstrate our commitment to China.”
BHP now receives about 20% of its revenue from China, up from 2% in 2000. China’s insatiable demand for raw materials is a reason BHP this week reported record annual earnings for the seventh straight year, with net profit surging 15% to $15.39 billion. Revenue soared 25% to $59.47 billion.
The stakes are certainly high for BHP’s relationship with Beijing, and the company’s proposed hostile takeover of Rio Tinto tacitly needs China’s support.
The Financial Times reported in June that Chinese millers agreed to pay Rio Tinto up to 96.5% for their ore supplies this year, the largest ever annual increase and well above the 9.5% increase paid last year.
Given these dramatic price hikes in steel, China is concerned that a combined Rio Tinto- BHP would further force up prices of commodities. In fact, the merger would give BHP control of nearly half the Asian supply of iron ore, the main ingredient in steel.
But China’s consumption of crude steel in 2008 is expected to rise about 11% — an increase of some 44 to 50 million tons, according to the China Iron and Steel Association. Consumption of crude steel in 2007 was 434.36 million tons, up 11.87%.
China has also emerging as a major steel producer.
The International Iron & Steel Institute said that crude steel output reached 1,343 million metric tons in 2007, up 7.5% from the year before. It was the highest level of crude steel output in history and the fifth consecutive year of growth above 7%.
China’s steel production rose 18.8% to 489 million metric tons in 2007 — 36% of total output. Without China, world crude steel production would have grown only 3.3%.
As the Chinese rapidly move to dominate the 21st century economy, you can expect that propaganda campaigns will start to appear from other critical suppliers. While BHP’s complicity makes for good business, it does not make for a good corporate citizenship.
Disclosure: none
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