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BHP boss discusses productivity push amid low commodity prices

BHP Billiton CEO Andrew Mackenzie says better productivity is the biggest opportunity companies have to improve profitability amid volatile commodity prices.

Speaking at the Scottish Oil Club annual dinner at the weekend, Mackenzie said a crash in the price of oil highlighted the need for businesses to implement wide-ranging productivity drives.

Mackenzie said since 2012, BHP’s productivity initiatives have delivered almost $US10 billion of annual savings, increasing the cost efficiency of its operations and capital investments by over 30 per cent.

“We have found that many small, incremental steps add up to a major increase in efficiency. It’s all about doing the simple things better,” Mackenzie explained.

Challenging teams to find the best way of doing things and making those improvements the benchmark has helped to drive productivity and ensure BHP remains competitive, Mackenzie said.

“Take maintenance – a major component of costs in both mining and oil and gas. By applying a benchmark to common activities across our assets, we have identified and shared best practice which has led to more uptime, lower costs and an energised workforce,” Mackenzie said.

The comments come amid a time of depressed commodity prices for the company.

Oil prices have dropped from $US100 a barrel to under $US60 a barrel, while the price of iron ore has more than halved since the start of 2014.

Coal is also suffering from a price fall, with both metallurgical and thermal coal suffering.

The API2 2015 coal futures have dropped to below US$60 for the first time since January 2006.

In the wake of this the ANZ Bank has dropped its forecast for Japanese contract prices from $75 per tonne to $70, while NAB has called $72.50, a significant drop from last year’s March price of $81.80 per tonne while most analysts are reporting the current levels as the market floor.

Despite this, Mackenzie said the long-term fundamentals that support global economic growth and the demand for energy are strong.

“With 1.7 billion people expected to gain access to reliable electricity by 2030, and the number of cars forecast to increase by more than 50 per cent in that time, living standards will improve and the demand for energy will continue to grow,” Mackenzie said.

“While greater efficiency, renewables, and nuclear will help meet growing energy demand, our industry will play a significant role in every plausible scenario.”

Mackenzie said the International Energy Agency predicts conventional energy sources will still provide about three quarters of the world’s energy mix in 2040.

“This signals an increase in demand for our products over current levels and also the long-term opportunity before us.”

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