Why BHP Comments Were Misinterpreted

All this over a single comment? I bet Ian Ashby, the president of BHP's iron ore division, is scratching his head over the reaction to his comments, made in Australia, that that iron ore growth from China would be slowing down to single digits.

Global stocks were down on this comment, with key material and industrial stocks down two to three percent.

"Is this breaking news, NO," Merrill Lynch wrote in a note. "The growth rate for Chinese iron ore consumption has been expected to moderate to single digits from 2012 onward for a number of years now..."

To illustrate this, UBS estimates that China saw iron ore imports grow by an average of 24 percent from 2000 to 2010 — 24 percent! You cannot grow 24 percent a year, eventually you will be buying all the iron ore in the world!

Merrill Lynch estimates that growth slowed to 19 percent a year from 2003 to 2011, and that from 2012 to 2019 growth should slow further to about 6 percent a year.

Same situation with Caterpillar: it reported 3-month rolling sales in its machinery division grew 21 percent. Sounds great, but numbers were far higher last year in February: up 59 percent, and sales throughout all the other months last year were terrific, but they began decelerating late last year. You cannot grow 59 percent year-over-year...eventually you slow down. Up 21 percent is still a great number.

Elsewhere, there are other factors affecting China: the government raised prices for gasoline and diesel fuel for the 2nd time in as many months.

On the surface, this is not good news for Chinese consumers. But it is a sign that officials do not seem alarmed by inflation; China's CPI was up 3.2 percent in February year-over-year, down sharply from the middle of last year.

Theoretically, this is good news for Chinese oil companies, but both China Petroleum and PetroChina are down — they are losing money on their refining operations due to the low gas prices mandated by the Chinese government, and these hikes have not prevented those losses.

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