(Reuters) - BHP Billiton (BHP.AX) (BLT.L) said it expects commodity markets to cool further and that investors have lost confidence in the longer-term health of the global economy, in the most cautious comments yet from the world's biggest miner.
BHP also put the brakes on a plan announced by Chief Executive Marius Kloppers in 2011 to spend $80 billion over five years to expand its iron ore, coal, energy and base metals divisions, banking on continuing high demand from its main market, China.
"It is all about appropriate allocation of capital. When Marius (Kloppers) talked about the $80 billion, the environment was different," Chairman Jacques Nasser told reporters after a Sydney business lunch on Wednesday.
"We should pause, take a deep breath and wait and see where the pieces fall around the world," he said, stopping short of announcing a spending cut.
The company was re-thinking its expansion plans "every day," Nasser said.
Asked if BHP would spend $80 billion over five years, he replied: "No."
"It's a sign that their view is that commodity prices are not going to go up from here, and in that sort of scenario, you can't be spending $24 billion to $25 billion a year," said Hayden Bairstow, an analyst at CLSA.
BHP shares tumbled 4 percent to the lowest since July 2009, while the broader market .AXJO fell 2.2 percent. The Australian dollar slid to its lowest since December.
"Now that commodity prices have plateaued in the medium term, there is pressure on companies with the costs going up," said Ric Ronge, fund manager at Pengana Global resources Fund, which owns BHP shares.
"We are seeing a cycle within a super cycle largely because of the macro events in Europe and to a lesser degree in China."
The Reuters-Jefferies CRB index .CRB, a closely followed indicator for commodities, has slumped more than 11 percent since hitting a five-month peak in late February amid a broader sell-off in financial markets.
"The tail winds of high commodity prices have contributed to record growth in the sector. Now we have a period where those tail winds are moderating and we expect further easing over time," said Nasser, a former president of Ford Motor Co. (F.N).
Much of BHP's earnings hinges on demand growth in China, the biggest importer of iron ore, copper, nickel and other industrial staples needed to support mass urbanization underway in the world's No. 2 economy.
Chinese data last week showed the country's economic expansion was cooling more than expected. Industrial output growth slowed sharply in April and fixed asset investment, a key driver of the economy, hit its lowest level in nearly a decade.
A Reuters poll after the data showed economists expect economic expansion in the second quarter to slip to 7.9 percent, which would mark the sixth consecutive quarter of weakening growth.
In March, BHP said it saw signs demand for iron ore in China was flattening, though a longer-term outlook was upbeat.
BHP made close to $10 billion in first-half profit before exceptional items.
That was largely due to BHP's profitable iron ore business, a strength that it shares with its main rival, Rio Tinto (RIO.AX), which unveiled a $3.4 billion expansion of its Australian iron ore mines in February.
Outside of iron ore, Nasser said plans to invest billions of dollars beefing up the company's Olympic Dam copper and uranium mine in Australia were still subject to a board decision later this year.
BHP has resisted pressure to return ore cash to shareholders after splashing out $17 billion in shale gas acquisitions last year. Kloppers indicated in the past that he preferred to conserve cash to expand the company's mines.
"Constraining capital is not a bad idea in this environment," said John Robinson, chairman of Global Mining Investments (GMI.AX), an Australian fund managed by U.S. money manager BlackRock Inc (BLK.N).
BlackRock holds about 6 percent of BHP's stock.
"Having said that, a return in the form of a special dividend or a share buyback in the short term would be most welcome," Robinson said.