Global base metals consumption is divided into two sectors – China and the rest of the world.
By 2017 China will consume more than half of the world’s supply of base metals, the remaining 200 countries will make up the remaining 48 percent of the market, according to an October report published by Woods MacKenzie.
“Today, the Rest of the World, excluding China, accounts for 54 percent of the global base metals market. However, as we’re seeing with many other commodities, China’s rampant appetite will overtake the Rest of the World, growing to 52 percent of demand in a 117Mt (metric tons) market,” penned the Scotland-based energy and metals analyst.
Consumption is being driven largely by China’s investments into its infrastructure, an enormous urbanization effort aimed at shifting the balance of its economy toward consumerism.
Helen Matthews, head of base metals markets research for Wood Mackenzie said, “Our forecasts for the next five years show that across all of the base metals – aluminium, copper, lead, nickel and zinc – growth in demand will come predominantly from China.”
Hard landing?China has enjoyed double-digit gross domestic product growth for most of the past three decades. Over the past two years, however, the growth of the country’s GDP dipped to below 7.8 percent, causing many analysts to debate whether China’s economy was headed toward a hard or soft landing.
Some analysts, however, see the still respectable GDP growth as a sign that China’s economy has reached its cruising altitude.
“China’s economy is expected to grow this year between seven (percent) and eight percent, and given that the country enjoys the largest foreign exchange reserves in the world, relatively low inflation and virtually no foreign debt, it has the full array of policy and monetary tools to maintain that level of growth,” Teck Resources Ltd. President and CEO Don Lindsay pointed out in January.
China is an important customer of the copper, steelmaking coal and zinc produced at Teck’s Pacific Rim mines in Alaska, British Columbia and South America. For this reason, the Vancouver, B.C.-based miner keeps close tabs on the economic trends of the Middle Kingdom.
Questioning the math of Wall Street analysts who predict a hard landing, Lindsay observed that the smaller percentage growth of a larger Chinese economy results in larger growth in real terms. The country’s current annual GDP growth of US$550 billion is roughly double the US$250-US$350 billion added annually by the double-digit GDP growth of six or seven years ago.
“At Teck we don’t care about the percent; we care about tons,” Lindsay said.
According to Wood Mackenzie, the tons of base metals that China is consuming are increasing at a healthy rate.
“Demand growth has slowed from the double digits we saw from 2008 to 2013 to single digits – ranging from five (percent) to eight percent – however, it’s important to note that in absolute tonnage terms, we still see significant numbers,” said Matthews.
Future brightensAfter hitting a low of 7.5 percent in the second quarter, China’s annualized GDP rebounded to 7.8 percent in the third quarter, according to numbers released by the country’s National Bureau of Statistics
“China’s economy has maintained a steady growth with major indicators staying within the rational range,” NBS spokesman Sheng Laiyun said during an Oct. 18 press conference.
This growth is driven to a large degree by government spending on infrastructure and urbanization projects, an investment that is aimed at bolstering its burgeoning middle class. In the longer term, China hopes these efforts will increase the spending power of its 1.35 billion citizens. For now, the urbanization and infrastructure demands an increasing supply of iron, copper, zinc and other base metals.
“While there are a number of factors behind growth in demand for each base metal, a key theme for China is continued urbanization and rising domestic wealth,” explained Wood Mackenzie Senior Economist Johnathan Butcher.
Lindsay said China’s commitment to urbanization “will require a lot of commodities and should be good for all of us.”
He said Teck’s confidence in the growth in China is the driver behind the investments it is making in mines and mineral properties closer to home.
Using a proprietary index that tracks a number of factors, Wood Mackenzie is confident that China’s strong economic growth and base metal demand will remain intact for at least the next several years.
“Looking out to 2030, we see a bright future for Chinese commodity demand,” said Butcher. “Urbanization rates will reach 70 percent, compared to just under half of the population in 2013. This will have a widespread impact on the economy over the next 20 years, with electricity consumption per capita forecast to reach the same level as Korea today.”
Delivering this electricity is expected to require a lot of copper.
Referring to China’s five-year plan, Lindsay said the country is targeting the addition of 200,000 kilometers (124,000 miles) of transmission lines to its electrical grid.
“To put that in perspective, that is more than enough transmission line to replace every single existing power line in Canada,” he said.
Chinese copper imports climbed 18 percent to 457,850 metric tons in September, the highest level in 18 months.
Similar investments in roads, housing, pipelines and many other urbanization and infrastructure projects will put demands on the entire gamut of base metals, which is good news for companies exploring for and delivering these commodities to China and the rest of the world.
“Those that are able to weather the down-cycles and maintain or advance their asset base will find themselves even better positioned for future growth, and in our industry that growth lies in Asia and particularly in China,” Lindsay added.