Expansion in China
free.financialmail.co.za
very interesting comments in this article about zinc, zinc usage compared to North America. Makes me even more bullish on zinc and copper. We mustn't forget India either. The article is dated July 2002 but don't let that faze you. Stephen O
INVESTMENT DECISION PAYS OFF
By Brendan Ryan
China is considered the dominant force in the future of the world's metals and mining industries - something Kumba Resources management realised well ahead of the pack. In 1994, when Kumba was still Iscor's mining division, Iscor opted to invest US10m in infrastructure and handling facilities at Qianwan harbour in northeast China.
The immediate, direct benefits included guaranteed use by Iscor of a 300 000 t iron-ore stockpile facility for nine years and the granting of priority by harbour authorities to the handling of Iscor ore carriers.
Iscor chairman Hans Smith said at the time there would be considerable savings on freight charges because Iscor could ship its ore in Cape-sized vessels taking 120 000 t cargoes at a time compared with the smaller Panamax-sized ships, which only take up to 60 000 t, it had been using previously.
Iscor also decided to place a technical manager in Beijing to examine the Chinese mining and steel industries, looking for new business opportunities. Management reviewed Iscor's iron-ore sales policies to give priority to Chinese customers. At present 40% of Sishen's iron-ore exports go to China.
The indirect, long-term benefits from that investment are now starting to flow through to Kumba. The goodwill and co-operation its operations have generated among the Chinese is paying off in access to and credibility within China during a key development period for the country.
China is booming as its leaders opt for rapid economic growth and open up the country to foreign investors to achieve it.
Macquarie Bank commodities strategist Jim Lennon says by 2005 China will be the largest consuming country in the world in every metal traded on the London Metal Exchange - copper, aluminium, zinc, nickel, lead and tin.
He attributes the strong Chinese growth to three factors, with two-thirds of the growth flowing from internal dynamics. "Domestic consumption growth is strong and accelerating as more Chinese have middle-class aspirations for housing and consumer durables. And it is projected that as many as 200m Chinese in the coastal regions will have Western middle-class spending power within the next five years.
"There is rapid growth in the building of infrastructure. As growth spreads inland the Chinese government has embarked on a huge programme of investment in the Western regions in transport infrastructure, power stations, power transmission lines and telecommunications.
"The third driver for Chinese metal demand has been a flood of foreign investment in China in industries producing products for the domestic market and for export. China is sucking in metals consumption from the surrounding countries in the region, particularly Japan and Taiwan," Lennon says.
An obvious boost to Kumba from this, of course, is further rapid growth in the iron-ore trade, which is why it is keen on the development of the Hope Downs iron-ore project in Western Australia.
But there are other possible spin-offs and Kumba is looking closely at China's zinc industry for future business ventures. "The potential to increase domestic zinc demand in China is huge," says Kumba base metals GM Ernst Venter.
He says Kumba is interested in getting involved in the downstream beneficiation stage of the zinc business through a joint venture with an existing zinc smelter.
From that base, Kumba could consider working backwards along the production chain to get into primary zinc mining, should it decide to go that route as well.
"There are 271 zinc smelting plants in China, of which about 100 have production capacities below 5 000 t/year of metal.
"We have selected a modern smelter in northeastern China about 300 km from the coast, which was built in 1993 and has ambitions to grow.
"Our strategy is to grow with them. We will take an equity stake and will have management control of the smelter. The plan is to start small, see if this kind of relationship works and build it up from there," says Venter.
"The Chinese already consume more than 1 Mt/year of zinc but the intensity of zinc use in China is 16 times lower than in North America, which consumes about 800 000 t of zinc annually.
"If they improve that intensity ratio to just eight times less than North America, then China's consumption of zinc could double.
"The global zinc market is depressed at present in large part because China is exporting about 500 000 t of zinc annually. A doubling of Chinese zinc consumption would swing the entire zinc market around," Venter says.
He believes such growth is achievable. "In China they have yet to see the white wave' of consumer durable goods such as washing machines or dishwashers. So far only 3%-4% of the population owns cars. "
But Kumba has greater ambitions for China than merely expanding its zinc and iron-ore businesses.
Executive director for strategy and new business development Richard Wadley says: "We have a really good relationship with Chinese businessmen and are looking at several opportunities there from marketing to processing to mining.
"China holds potential for all four of the key commodities in our core portfolio - iron ore, zinc, coal and titanium." he says. |
