Base metals still dependent upon China’s demand

Whilst we may not be witnessing the high of the Golden Decade, one thing is crystal clear: China is still the key driver of base metal commodity demand, and mining companies in this space should continue to look to China as a potential customer.

Go to the profile of Andrew Thake
Apr 03, 2019
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One of my pet hates is speakers at conferences who think they can talk knowledgably about China. Yet, when you listen to their presentations, it is obvious that their experience of China is limited.

It was therefore refreshing to listen to Dr Greg Guocheng Pan’s presentation at Mines and Money Asia. Dr Pan, a native Chinese,  is CEO of The Hanking Group, a large Chinese diversified base metals producer, and is therefore better qualified than most to talk about Chinese commodity demand and its implications.

Dr Pan’s central thesis was whilst things may look bad, they are not as bad as they first appear.

Dr Pan pointed out that although we’ve come off the highs of the Golden Decade (2007 to 2016), China is still a critical driver of commodity demand.  Sure, China’s GDP is down, but so is India and the US. And a projected GDP growth of 6% for next year is a GDP growth figure that Western economies can only dream of. 

The biggest challenge facing China from a mining perspective is its trade war with US. EPU (Economic Political Uncertainty) is at its highest since 2012,  with many predicting that this will only get worse.

On the upside, China’s centrally planned economy means that it is has a 5-year plan. This includes a commitment to build 3000 kilometres of new urban railway lines and 152,000 kilometres of roads in rural areas.  Copper imports to China remain strong, 10% higher than 1 year ago.

China’s appetite to commodities was music to the ears of the three exploration plays that followed.

Peter Bird of AsiaMet pointed out that copper consumption has grown at 2% per annum since 1950s. This combined with a lack of capital investment in copper means that around 2027 current planned supply drops away, great news for miners and investors who are playing the long game when it comes to base metals.

Richard Taylor, CEO, Terramin, a zinc and precious metals producer noted that zinc is up by 60% from its lows of 2015, buoyed by the shortage of nickel supply for battery grade products. China is committed to electric vehicles and building gigafactories, which can only be good news for Terramin.

Matodzi Nesongozwi, CEO, Manngwe Mining, South Africa’s 3rd largest iron ore producer explained how they were building closer ties with the Chinese.

Whilst we may not be witnessing the high of the Golden Decade, one thing is crystal clear: China is still the key driver of base metal commodity demand, and mining companies in this space should continue to look to China as a potential customer.

Go to the profile of Andrew Thake

Andrew Thake

Head of Content, Mines and Money

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