2013-09-30 16:05:14 - Fast Market Research recommends "China Metals Report Q4 2013" from Business Monitor International, now available
China's metals industry is set to face a protracted period of slowing growth as the country's rebalancing process begins in earnest. Companies operating in sectors that are tied heavily to the construction industry will take the brunt of weakness from the sharp slowdown in fixed asset investment. The consolidation of the bloated steel sector will be a painstakingly slow and painful process as concerns over maintaining employment will temper Beijing's appetite for a considerable shake-out of the steel industry over the near term.
With the Chinese economy on course for a continued slowdown over the coming years, we believe that China's metals industry will come under increasing pressure in the future. As evidenced by recent events, China's economy appears to be
finally buckling under the weight of its credit binge and we believe that a recession is at hand (see 'All Signs Point To H213 Recession', June 27). The downshift in the Chinese economy will take its toll on the metals industry as the construction sector experiences a sharp slowdown over the coming years.
Full Report Details at
We expect construction activity in China to moderate significantly in the coming quarters despite the recent announcement of a 'mini-stimulus' by the Chinese government. Our forecast for China's real GDP to average 6.1% between 2013 and 2023, compared with an impressive average real GDP growth rate of 10.3% per annum over the past decade, implies that demand for metal will eventually falter. Indeed, metals such as steel and nickel are most exposed to the economic slowdown in China due to their pronounced usage in the construction industry. However, we note that China will retain a structural deficit for key metals such as iron ore, copper and nickel despite slowing consumption growth.
Consolidation To Take Place Gradually
We believe government plans to significantly consolidate the metals and mining industry will be watered down in the coming months as concerns over maintaining employment continue to take precedence. The unwinding of the bloated steel sector will be a slow process, punctuated by intermittent support from the Chinese government to keep many of the loss-making steel mills in operation. This is especially so during the early phase of a leadership transition and in the face of a slowing domestic economy.
While injunctions from the new leaders to rationalise and consolidate the bloated steel industry have been forthcoming in recent months, we continue to harbour doubts over the effectiveness of the policies initiated and believe that they should be taken with a grain of salt. For instance, China's latest edict to more than 1,900 companies to shut excess production capacity across many different sectors by September is unlikely to have much impact on the metals industry. According to the China Steel Association, the edict will result in just 7mn tonnes (mnt) of steel output being idled in a sector that has more than 300mnt of surplus capacity. Similarly, China has ordered about 286 thousand tonnes (kt) of excess aluminium output to be shut when smelting capacity is 30mnt and demand is about 23mnt.
Nonetheless, we believe consolidation of the metals' industry will eventually take place due to slumping profit margins, falling prices and the reorientation of China's economy away from fixed asset investment and towards private consumption. Indeed, state-owned companies, which already enjoyed a dominant role in the mining and metals industry, will emerge as even more prominent after the consolidation.
Report Table of Contents:
BMI Industry View
- Dimmer Outlook As Headwinds Blow
- Metals SWOT
- Industry Forecast
- Aluminium: Surplus To Remain Despite Cutbacks
- Table: China - Aluminium Production & Consumption Forecasts (kt, Unless Otherwise Stated)
- Copper: Slowdown In Place
- Table: China - Largest Refined Copper Projects
- Table: China - Refined Copper Production, Consumption & Balance (kt, unless stated otherwise)
- Lead: Autos Sector To Lend Support
- Table: China - Refined Lead Production, Consumption & Balance (kt, unless stated otherwise)
- Nickel: Growth To Slow As Economy Rebalances
- Table: China - Refined Nickel Production & Consumption (kt, unless stated otherwise)
- Steel: Bloated Sector Running Out Of Luck
- Table: China - Steel Production & Consumption (kt, Unless Stated Otherwise)
- Table: China - Steel Industry Historical Data (kt, unless stated otherwise)
- Tin: Domestic Deficit To Stabilise
- Table: China - Refined Tin Production, Consumption & Balance (kt, Unless Stated Otherwise)
- Zinc: Dragged Down By Faltering Steel Sector
- Table: China - Refined Zinc Production, Consumption & Balance (kt, Unless Stated Otherwise)
- Monthly Metals Strategy
- Ferrous Metals
- Base Metals
- Aluminium: Still Further Declines
- Copper: Continued Weakness
- Nickel: Persisting Fall
- Zinc: Holding Steady, For Now
- Table: Select Commodities - Performance And BMI Forecasts
- Table: Global Commodities Strategy
- Steel Price Forecast
- Table: BMI Steel Forecast
- Table: Steel Forecast
- Tighter Regulations & Consolidation Is The Game
- Table: Political Overview
- State Dominance To Grow With Consolidation
- Table: China - Largest Listed Metal Producers
- Aluminum Corporation of China (Chalco) - Q4 2013
- Table: Chalco - Key Financial Data
- Angang Steel Company - Q4 2013
- Table: Angang Steel - Key Financial Data
- Baoshan Iron & Steel - Q4 2013
- Table: Baoshan Iron & Steel - Key Financial Data
- Cross Checks
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