Major miner, BHP, has analysed the impact of China’s Belt and Road Initiative (BRI), a network of overseas construction projects, on commodity demand.
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The company still sees China as offering rich opportunities due to its large scale, ongoing urbanisation and the BRI, potentially boosting copper use by 1.6 million tonnes, or roughly 7 percent of annual demand.
BHP said China’s overseas expansion plan covered 115 partners across Eurasia, parts of Africa, Latin American and Oceania, up from 68 countries or regions it cited a year ago.
According to its Annual Report 2018, understanding the risks and opportunities posed by China’s future path is critical to the performance of BHP’s portfolio.
“Based on the results of the study we have carried out, we estimate that BRI will involve expenditure of around US$1.3 trillion and potentially generate up to 150 million tonnes of incremental steel demand, doubling the growth rate of local steel demand from 2011 numbers”, said BHP.
BHP is already preparing to meet this projected long-term demand. More immediately, BHP is responding to changes in the dynamics of the China market driven by the country’s supply-side reform of its steel industry.
With China pushing to complete reforms of its steel mills by 2020 – beginning in late 2015, China began removing 150 million tonnes per annum of capacity, with obsolete and inefficient plants the first to be closed – industry-wide profitability has now improved materially.
BHP sees this shift having implications for iron and metallurgical coal demand, with steel mills and copper smelters transitioning to more energy efficient and less carbon intensive technology. This will drive demand for higher-quality products.
“China’s increasing focus on environmental protection and ‘ecological civilisation’ has prompted increasingly strict emission standards” says BHP. “This will also support the demand for high-quality products that produce fewer emissions.”
As a major metallurgical coal and iron ore supplier, BHP works with its customers, industry and research institutions in China to develop sustainable technologies. BHP believes that China’s contribution to the reduction of worldwide greenhouse gas emissions “will be critical for the world to limit the increase in global temperatures to two degrees Celsius”.
To this end, BHP is e collaborating with Peking University on research into carbon capture and storage.
China is also forging ahead in positioning itself as a leader in clean energy technology. BHP believes that renewable energy infrastructure will generate greater demand for commodities.
“Our industry has a responsibility to be at the forefront of innovation so that we safely, efficiently and sustainably deliver our commodities to the world, throughout any cycle.”