Title China Metal Demand - Hunger that consumes all Degree of recognition National Media name/outlet ResourceStocks Magazine - Aspermont Media type Duration/Length/Size 2 pages Country Australia Date 1/06/13 Description Every reader of RESOURCESTOCKS knows that China’s economic growth has translated into a great impact upon global metals and minerals demand over the last decade. What readers may not know, however, are the actual demand-side numbers themselves on a metal by metal basis.
China has, on average, delivered the full 100 per cent of the minerals demand growth since the turn of the century across the world’s major metals markets.
Let me state that once again. China has accounted for not just some, but virtually all of the net global growth in demand since 2000 across the likes of copper, lead, nickel zinc, steel, aluminium and iron ore.
In detail of course, the actual contribution of China varies from market to market. In aluminium and steel for example, the number sits at around 80 per cent, whereas for copper and zinc the numbers are around 120 per cent and 110 per cent respectively. On average therefore, as stated above, China represents 100 per cent of net global metals demand growth this century. Nickel is an easy metal to remember – where China’s contribution to demand growth sits almost exactly at the 100 per cent mark for market growth 2000-2012.
This quantum of China’s impact may surprise some readers.
How can one country account for more than 100 per cent of growth in some markets? The obvious answer is that other markets need to experience negative growth – and indeed have done. China has picked up the slack – and more again –when some of the OECD economies have lowered their first use of metal (the point at which metals demand is typically measured).
The pattern looks set to continue. Whilst the Organisation for Economic Co-operation and Development (OECD) group of 34 countries continue their gradual recovery from the Global Financial Crisis (GFC), with industrial production (IP) still below pre GFC peak levels – China’s industrial production growth continues apace.
Indeed, CRU Group analysts forecast a further 11.2 per cent China IP growth in 2013 and 10 per cent in 2014. In GDP terms, China’s forecast growth sits at around 8 per cent for 2013, then in the range 7.5 to 8 per cent per annum for 2014, 2015 and 2016. Contrast this with OECD average annual growth at 2.4 per cent to 2017.
Much of China’s metal demand growth over the last decade has fed domestic economic needs, with the Chinese economy having witnessed an investment-led boom through the build-out of urban centres and supporting infrastructure. Now over 700 million Chinese people are classified as urban residents – surpassing the rural population in absolute terms.
The 21st Century mining boom has thus been founded on China’s ‘short’ position in large metals markets where China’s domestic supply has not met domestic demand. China has thus ‘pulled’ supply from other countries to cover a long-term structural short position and fuelled growth with mineral imports. As a result, prices have risen for all those minerals where China lacks sufficient domestic supply to cover its needs. These can be referred to as the ‘China-short’ minerals, with iron ore and copper the bellwether examples.
Of late however, China’s domestic demand for those minerals in which it has a structural ‘long’ position has also driven prices higher for those minerals where China already dominates global supply.
Typical examples here lie in tungsten, rare earths and antimony amongst other minor metals. In these China ‘long’ markets, rising domestic demand for such minerals has placed China’s export capacity at risk over the medium to long-term. China has responded with market interventions such as quota systems and export tariffs.
So should mineral sector investors focus on China ‘short’ markets or China ‘long’ mineral markets? Both China ’short’ and China ‘long’ effects will continue to exert a positive influence on mineral prices. China ‘short’ is the greater force in absolute terms– as the sheer size of the iron ore and copper markets will dictate that absolute revenue and economic impact is greatest there.
Conversely the boutique (read small) nature of alloying and minor minerals markets in which China has a structural long position will result in greatest volatility and impact in percentage terms upon minerals prices there.
As to the China ‘short’ or ‘long’ conundrum, the answer is straightforward: It is not a question of one or the other – but of both. China’s economic trajectory will suck up both those metals in which it which it already dominates global supply (typically the smaller metals markets) – and continue to dominate global demand growth in the larger mineral markets too.
Producer/Author Allan Trench Persons Allan Trench
- metal demand