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China Metals Report Q1 2012
Business Monitor International, Jan 2012, Pages: 66
Business Monitor International's China Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's metals industry.
China's consumption and supply of copper, steel, aluminium, lead, nickel and tin increased substantially in 2011 due to base effects as the world's second largest economy returned to growth above 9%. Strong growth is expected in both supply and demand across these sectors as China continues to feed its near insatiable hunger for refined metals. However, in line with its below consensus views on Chinese growth BMI expects metal production growth to slow over the period to 2016. Furthermore, while BMI sees a slowing in consumption, and to a lesser extent production, it expects a divergence between the base metals as the Chinese economy moves away from investment-led growth towards domestic consumption. This will have a varying impact on each metal, as investment tends to be focused on infrastructure which is a major user of aluminium and steel. Whereas demand for electronics, which use tin and copper, will see less of a decline in demand and BMI therefore expects consumption rates to hold up better.
In terms of nickel production, BMI forecasts output growth to slow to an average annual rate of 11.1%, reaching 988kt ('000 tonnes) in 2016, from 386kt in 2010. Regarding the consumption of refined nickel, BMI has downgraded its forecasts on the back of China's increasing use of nickel pig-iron as a substitute for refined nickel. BMI therefore expects growth to average 4.8% a year, compared with the previous estimate of 9.0%, reaching 1.2mnt (mn tonnes). BMI forecasts crude steel consumption reach 782mn in 2016, up from 562mn tonnes in 2010.
Steel production will reach 814mnt in 2015, up from 626mnt in 2010. Steel output could be boosted as Chinese companies increase production to make up for lost output from Japanese refineries following the earthquake in March 2011. Finally, BMI expects 5.7% growth in Chinese refined tin production, reaching 210kt in 2016. Demand for tin is set to increase by an average rate of 4.0% to reach 191kt in 2016. With this downward revision to its consumption forecast BMI expects China to once more become an exporter of tin, with a deficit of 19kt in 2016. While this does not sound significant, it will have important implications in the global tin market because 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, BMI highlights a trend that will see Chinese production outpace consumption. This will mean China becomes less reliant on the import of refined metals, perhaps from Australia, one of the largest producers of refined metals.
Risks To Outlook:
There are two other risks to BMI's outlook. First, the supply of refined metals could be at risk from efforts to increase energy efficiency and reduce power use, 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, BMI's 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. BMI 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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