<Are finished goods prices up at all?.>
The prices? Get serious. At the pace of this train wreck, you won't even be able to GET finished goods in many, many items. There is no nickel left for stainless steel for example. Track Allegheny Ludlum site also located here for SS pricing, availability.
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China’s Insatiable Demand for Base Metals
China's nonferrous metals industry – a year behind, a year ahead
By Melinda Moore --------
"We want more now!" - signed China
Already the world's largest factory, China's voracious hunger for base metals has continued unabated over the past year, pump primed by record foreign direct investment and domestic growth levels of more than 8 percent, SARS hardly caused a blip, despite many doomsday predictions to the contrary. China's cries appear only to be intensifying for more buildings, more cars, and more electrical goods.
China became the world's largest consumer of copper in 2002, toppling the United States from its perch. The mainland is also one of the largest consumers of alumina, zinc, nickel, and refined copper. And where China is not yet the largest buyer of a particular base metal (eg nickel), it soon will be.
Equally, China's sudden and dramatic emergence as a large export nation has upset recent global metal market equilibrium, just as Russian metal exports did in the early 1990s. China is now the world's largest exporter of antimony, magnesium and tungsten; and one of the largest exporters of zinc, lead, tin and aluminum - with further developments only restricted by huge alumina and power supply shortages.
Last year, China also overtook the US as the world's largest producer of the 10 major nonferrous metal groups (copper, nickel, aluminum, lead, tin, zinc, antimony, magnesium, titanium and mercury), hitting a record output of 10.12 million tons. It has also become the world’s fourth-largest gold producer.
Not well endowed
China in general however is not well endowed with adequate natural resources, particularly copper, bauxite and nickel - although oil and iron ore remain its two most costly resource shortages.
Any resources China does possess are usually difficult to exploit. Its bauxite, copper, nickel, lead-zinc and potassium holdings, for instance, are generally low grade, located in remote areas suffering from poor infrastructure and are mined by inefficient small-scale operators.
The head of China's Ministry of Land and Resources, Tian Fengshan, said recently that the country's exploitable mineral reserves stand at only a third of its total verified resources, and that the remaining two thirds are still to become economically viable.
Meanwhile, the Ministry of Land and Resources announced in April that 400 mines were facing closure due to near resource depletion.
Going Global
China has been especially keen to shore up access to foreign supplies of any of the metals it lacks - either with long term supply arrangements or stakes in foreign mines.
For instance, China imported over 1.25 milion tons of copper concentrate in 2002, two-thirds of its total annual needs. To help reduce such a heavy reliance on foreign trade, the China Nonferrous Metal Industry Corporation is spending US$100 million over the next five years to double capacity at its 85 percent-owned Chambishi Copper Mine in Zambia, Africa, following completion of the mine's rehabilitation in July at a total cost of US$150 million. The mine is China's largest overseas nonferrous metal mining investment.
Meanwhile China's largest nickel and cobalt producer, Jinchuan Nonferrous, announced in August a US$700 million nickel supply deal with the world's third largest nickel producer, Australia's WMC Resources, extending their existing agreements through until 2010. Jinchuan also entered into a life-of-mine off-take agreement last October with Australian-listed Sally-Malay Mining. Concentrate shipments to China are expected from the third quarter of next year, for at least the next five years. These deals demonstrate Jinchuan's determination to become a 100,000-ton plus nickel producer in the near term. Jinchuan's parent company, China Minmetals, China's largest state-owned nonferrous metal trading company, is holding discussions with Cuban state-owned raw nickel and cobalt material supplier, Cubaniquel. Cubaniquel is pledging to supply raw nickel and cobalt concentrate on a long-term basis in return for a promise by China Minmetals to fund nickel and cobalt mining projects in Cuba.
Also hoping for an offshore presence is the China National Geological & Mining Corporation, currently in talks with officials from West Africa's Ivory Coast to establish a manganese joint venture mine. The company has already signed a supply agreement for 60,000 tons of manganese a year with Cuban mining house, Sodemi, to improve its steel-making efforts.
Meanwhile with huge offxshore investment plans already in place, the China Nonferrous Metal Industry Corporation (CNMIC) recently provided a US$ 40.5 million preferential loan to develop the Sin Quyen Copper Mine in Lao Cai, Vietnam, which will become Southeast Asia's largest copper mine. CNMIC is also engaged in mining copper in Iran, zinc in Mongolia at the Tumurtiin Ovoo zinc project, and lead-antimony alloys in Thailand. It is also planning non-ferrous exploration work, mostly for copper and bauxite, in Myanmar, Vietnam, Mongolia, Indonesia, the Philippines, Russia, Kazakhstan, Kyrgyzstan, Zambia and Congo.
Multiple Policy Thrusts
China is acutely aware of its myriad other metal problems. In its policy thrusts, Beijing has been pushing hard to improve mining and smelting technology, expand capacity where necessary or curb excessive production where possible, boost productivity, improve product structures, remove black market smuggling and illegal operations, lift energy efficiency and supplies, reduce resource wastage, stop environmental pollution, and create more robust internationally-competitive conglomerates, while at the same time trying to decentralize and privatize.
China originally established three nonferrous metal groups in August 1999, in an attempt to improve its competitive edge globally, under the umbrella of the CNMIC: China Aluminum Corporation (Chalco), China Copper Lead Zinc Corporation (CCLZ) and China Rare Earth Corporation (CRRC), which became the three largest producers in their respective areas. Yet the country is still grappling with how to exploit its growing strength on international markets, instead of just playing the role of price taker.
With its own futures markets suffering poor liquidity, China announced in April that seven metal smelters would be permitted to hedge their price risks on international futures markets in a bid to test the waters. The seven are Chalco, Jiangxi Copper, Henan Yuguang Gold & Lead, Zhongjin Linnan Nonfemet, Tongling Nonferrous Metals , Qingtongxia Aluminum, and Jinchuan Nonferrous Metals.
China has also had to reign in its overproduction dilemmas. Where low barriers to entry exist, such as in the aluminum industry, China's producers can wreak havoc among themselves, with local, provincial and national interests often divergent. As a solution, the China Aluminum Industry Association was established in April, headed by Chalco, the world's largest primary aluminum producer, to improve "self-discipline" among China's 130 electrolytic aluminum producers. The government is also limiting approvals for new smelters.
Meanwhile China recently upset global molybdenum markets by exporting low-cost oxides to the point of oversupply. But oversupplies give producers few price advantages and China has learnt its lesson fast.
China's Ministry of Commerce (MOFCOM), the entity responsible for issuing export quota limits, is intent on keeping rare earth export levels in check. 55,268 tons were exported last year; only 61,000 tons will be exported this year. A worrying by-product of these limits is that internal stockpiles continue to build. China's consumption requirements amount to only 80,000 tons while its productive capacity sits at over 180,000 tons. China also has the largest recoverable rare earth resources of any country in the world.
Allure of local mining
The international mining community is eagerly taking note of China's domestic industry developments.
At a recent Australia-China Metals and Minerals Conference, Sino Gold Ltd. CEO, Jake Klein, argued that China rates highly according to three key mining investment measures: geological prospectivity, cost competitiveness and the provision of a stable regulatory/fiscal infrastructure, which combine to make the country an extremely attractive mining destination.
Such glowing plaudits are a recent phenomenon. With state coffers less and less able to afford to sink funds into resource developments, foreign investment is increasingly encouraged. Growing numbers, particularly exploration minnows from Australia and Canada, are stomping ground and analyzing data, with new deals announced almost every week.
The Future
Whether China's metals industry will continue to move ahead in a straight line of continuous growth remains to be seen. Extrapolating per capita consumption patterns typifies the huge gaps that remain between developed countries and China's 1.3 billion residents. In developed countries, residents consume on average nearly a ton of copper during a lifetime, and around 10 to 20 kg a year, whereas Chinese residents are consuming just 2 kg per capita a year, according to International Copper Association figures. Could China's copper consumption requirements really increase five fold? We'll all be watching.
Melinda Moore is editor of the China Metals Weekly Report for Interfax China news agency. To receive a free sample, email paul.davis@interfax-news.com
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