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Base Metals
‘China factor’ continues to determine future of commodities outlook
Photo: Reuters
BCA Research chief strategist of the China Investment Strategy Yan Wang
Photo: Simon Rees
BCA Research chief strategist of the China Investment Strategy Yan Wang
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6th March 2014
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TORONTO ( – Chinese demand for metals and minerals remains robust, although the pace of uptake is moving towards a plateau as the country enters a more mature economic phase, delegates at the Prospectors and Developers Association of Canada were told on Sunday.

“There is a very clear correlation between Chinese gross domestic product [GDP] growth and commodity prices,” BCA Research chief strategist of the China Investment Strategy Yan Wang said. “When Chinese growth accelerates that’s good news for commodity prices, and when Chinese growth slows that’s bad news for commodity prices.”

Reviewing the past ten years, Yang highlighted the double-digit growth levels and a growing drive by Chinese companies to invest in production around the world, with the greatest investment flowing into Africa, Australia and Canada.

CRU Strategies CEO Phil Newman also considered China’s GDP, noting that the country recorded 7.7% growth for 2013. He added that the slowdown from the fast pace of previous years was not a bad thing.

“At CRU, we believe the slowdown is good news. It is good news for longevity and good news for sustainability,” he said.

In terms of uptake, Yang noted that commodities tied to energy can expect a bullish outlook when considering the ‘China factor’.

“Energy consumption is still extremely low compared with higher-income countries. As China continues to grow, the energy demand will almost inevitably continue to rise,” he said. “[And] the net increase of Chinese energy demand going forward will be entirely dependent on the external supply of energy.”

Meanwhile, Newman evaluated Chinese iron-ore uptake and forecast a 10% rise in foreign-sourced material, climbing from 80% to 90% by 2018. However, Chinese steelmaking output is expected to slow, he added.

“When you look at the Chinese business costs curve you will see that there is a significant amount of production at and around the $100/t level. As [we slide] towards that level, we are going to see some of Chinese production disappearing [and] that will remove a pretty significant price support at $100/t,” he said.

“[We] hold the belief that the price of iron-ore 62% FOB benchmark price will fall below $100/t by the end of this decade,” he added.

Yang considered a broad basket of metals and then compared China to other nations in East Asia, noting the country still had catching up to do. “If we follow the roadmap set down by South Korea, we can see that Chinese demand for some base metals will continue to increase,” he said.

However, the margin for catch up was steadily shrinking as China’s economy matured. “[Examine] the per capita consumption for a lot of base metals and we can see that China is already very advanced and comparable to countries like Japan,” he said. “The room for catching up is now limited. At least, I think the pace of growth will downshift going forward.”

Edited by: Creamer Media Reporter


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