Mining/Metals/Minerals

Mining Trends: The Impact of China

The trend with the most impact to the global mining industry is China. The sheer size and strength of China has made it the economic engine of the world. They will continue to be “one” of the major economic engines for some time.

How does China impact the global mining industry?

1.  China will no longer grow at a 2 digit rate. The days of 14% growth back in 2007, have passed. During 2012 we have seen China grow at a rate of 7-8%.

The speed and size of China’s growth is unparalleled, mostly due to how they make decisions and the speed in which they are made. This has created a demand shock. Substantial amounts of raw material were imported by China. This raw material was used to develop the infrastructure required by China and to manufacture goods for internal consumption…even exported.

The new Chinese single digit growth is better for the world: more sustainable and less volatile.

2.  Chinese growth includes external expansion, now emphasized due to lower internal growth.  China is expanding abroad. China’s outbound foreign direct investment grew from $5.5 billion to over $65 billion a year, and it is expected to reach $150 billion by 2015.  A large portion of this is dedicated to extract natural resources abroad.

Chinese companies are buying assets abroad, executing projects abroad, bringing with them the Chinese supply chain, etc.

China and Chinese companies become major producers. They will conform to international business rules, become a major force in the business world as customers and competitors, having similar strengths and weaknesses as other major players.

In the past it was the world without China…I used to read reports presented this way. Now it is the world with China and the Chinese companies.

What are the global implications?

 The slowdown in China will create a major slow down in the market IN THE SHORT TERM.  We have seen demand, prices and profits decrease.  However, fundamentals will remain the same.  The major difference will be that in the past it was just a matter of doing anything at any cost.   Now, cost –and in particular productivity- will be a major focus.

The second major impact is China is becoming a relevant economic power, not just as a consumer or a seller of products from China, but as Chinese companies becoming dominant in the business world, such as Lenovo, Huawei, Chalco.

The third impact is that countries and mining companies can no longer look to China as the only customer.  Alternative markets, such as India, Latin America and Africa, must be found.

…what are your thoughts on the on the impact of China?

 


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