Higher metals prices will result from China’s continuing growth surge and this will impact positively on Australian and international commodities. Although China’s growth has slowed from double digit figures, it is still above 7% and is likely to remain at similar levels in at least the medium term as its 1.2 billion population becomes more urbanized, industrialized, modernized and commercialized.
The urban and industrial growth is resulting in increased steel demand with the massive country needing to move to 1 billion tonnes of steel consumption by 2020.
Speaking in Adelaide at the Australian Resources Chinese Investment Congress, CRU Group associate consultant Allan Trench said metals prices had increased dramatically over the past 10 years, with star performers in the non-ferrous metal group being lead, copper and tin. “Aluminium and zinc prices have been more subdued but nevertheless they too have seen substantial price increases.
“Over this period, we have also seen an increase in price volatility and CRU expects a continuation of that trend - higher and more volatile metals prices – driven primarily by generated by China’s consumption of metal.”
Allan Trench says, “It has been a dramatic lift – up from 10% of global consumption (for the non-ferrous metals i.e. excluding steel) to more than 40% currently. China’s transformation will continue to take a greater share of metal consumption into the medium term forecast period. There was a step change in the pace of growth following the 2008 recession but China’s growth is expected to continue because industrialisation is metal intensive.
“China’s consumption growth, while also cyclical like elsewhere, remains strong. Its steel and aluminium industries are strategically important to its development path and in those sectors it has developed an export capacity – a factor that has kept these particular metals prices from globally rising to the highs seen across other metal commodities. The downside for China is that that comes at the expense of imports of such raw materials as iron ore, coal, alumina and bauxite.”
This export import equation has created opportunities for low-cost Australian and other overseas producers despite variations in cash costs and metals exchange pricing. Allen Trench says, “Mining houses wishing to fill this market space can’t do ‘everything’ simultaneously which has created room for smaller scale commodity-specific producers to add to contestable supply, particularly for copper, nickel, iron ore, coking coal and zinc – and bearing in mind it can take 10 years between discovery and a working mine. It is our view that Australia needs more mining investment now, for the long term, particularly to satisfy Asian demand.
“There are some bottlenecks around managing the most commercially viable projects but our predictions suggest Chinese steel demand could easily rise above 1 billion tonnes by 2020. We expect robust global demand growth for steel in the long term as while China is currently consuming around 500kg of steel per person per year, further increases in steel intensity can be expected based on lower-income provinces, potentially following the pattern of consumption in higher-income, largely coastal, provinces.
“CRU would therefore confidently expect per capita steel consumption in China to drive upwards towards 750kg/per person in coming years and likewise as income per capita increases are seen in India, Russia, Brazil and other developing economies, so steel use is expected to ramp up, following a similar path to the now fully industrialized countries. This demonstrates the potential of many nations to drive forward global steel consumption, and more than that, make up for little to no growth beyond pre-crisis levels in more developed countries.”