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China Metals Report Q4 2011
Business Monitor International, Sep 2011, Pages: 59
China's consumption and supply of copper, steel, aluminium, lead, nickel and tin increased substantially in 2010 due to base effects as the world's second largest economy returned to growth above 9%. We expect strong growth in both supply and demand across these sectors as China continues to feed its near insatiable hunger for refined metals. We expect aluminium production to increase at an average annual rate of 5.2%, reaching 20.4mn tonnes (mnt) in 2015 from 15.8mnt in 2010, with most of this growth driven by Yunnan Aluminium and Henan Bowei Aluminium. We expect consumption of aluminium to grow more quickly due to the development of infrastructure, averaging 9.2% per annum over the period and reaching 24.8mnt from 16.2mnt in 2010. In addition, we have upgraded our copper production forecast on the back of Xiangguang Copper's expansion plans. We now expect refined copper production to reach 6.56mnt in 2015, marking an average annual rate of growth of 7.2% from 4.57mnt in 2010. Refined copper consumption is set average 7.0% per annum from 7.42mnt in 2010 to 10.5mnt in 2015.
In terms of nickel production, we forecast output growth to slow to an average annual rate of 11.1%, reaching 650 thousand tonnes (kt) in 2015, from 290kt in 2010. Regarding the consumption of refined nickel, we have downgraded our forecasts on the back of China's increasing use of nickel pig-iron as a substitute for refined nickel. We therefore expect growth to average 4.8% per annum, compared with our previous estimate of 5.4%, reaching 709kt. In addition, we forecast steel consumption to average 5.8% growth to 2015, reaching 745mnt, up from 561mnt in 2010. Steel production will reach 744mnt in 2015, marking average growth of 3.5% per annum from 2010, when output was 626mnt. Steel output could be further boosted as Chinese companies increase production to make up for lost output from Japanese refineries following the earthquake in March 2011. Finally, we expect a 5.7% growth in Chinese refined tin production, reaching 195kt in 2015. Demand for tin is set to increase by an average rate of 4.0% to reach 186kt in 2015. With this downwards revision to our consumption forecast we expect China to become a tin exporter again, with a deficit of 9kt in 2015. Whilst this does not sound significant, it will have important implications in the global tin market as Indonesia, the largest tin exporter at present, plans to increase its domestic consumption of tin and reduce exports.
As well as forecasting growth across all sectors, we highlight the trend of Chinese consumption outpacing production. This will mean China becomes more reliant on the import of refined metals, perhaps from Australia, one of the largest producers of refined metals. That said, China appears to be seeking greater self-sufficiency and thus we note upside risks to our production forecasts, as the government may search for greater domestic exploration and manufacturing.
There are two other risks to our outlook. First, the supply of refined metals could be at risk from efforts to increase energy efficiency and reduce power usage, as was seen at the end of 2010. Indeed, while it tends to be the smaller refineries that are less efficient, refined metal production is highly fragmented and the smaller refineries account for a substantial proportion of output. Second, our forecasts for consumption growth are in line with overall GDP growth and thus any downturn in the economy would reduce growth in base metals consumption. Our expectations for demand are therefore exposed to the effects of monetary and fiscal tightening as the Chinese government attempts to stop the economy from overheating.
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