2013-12-08 17:23:10 - New Materials market report from Business Monitor International: "China Metals Report Q1 2014"
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 expect China's metals industry to come under greater pressure. The rebalancing of the Chinese economy away from fixed-asset investment and towards private consumption will
significantly dampen appetite for construction-related materials. In particular, metals such as steel and refined nickel will be adversely affected due to their heavy usage in the construction sector.
Full Report Details at
We forecast China's real GDP growth to average 6.1% between 2013 and 2023, compared with an impressive average growth rate of 10.3% per annum over the past decade. In our view, attempts by the Chinese government to arrest the structural slowdown in the country's economy will only cushion the impact of an economic slowdown, rather than revive a growth upturn. That said, 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
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 recent edict to more than 1,900 companies to shut excess production capacity across many different sectors by September 2013 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 to be even more prominent after the consolidation.
Report Table of Contents:
BMI Industry View
- Metals SWOT
- 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)
- Aluminium: Surplus To Remain Despite Cutbacks
- Table: China - Aluminium Production & Consumption Forecasts (kt, Unless Otherwise Stated)
- Copper: Slowdown In Place
- Table: China - Select 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)
- 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)
- Table: Political Overview
- Iron Ore: Rally To Fade In Q413
- Steel: Supply Glut To Endure
- Aluminium: Surge Gives Way
- Copper: Weak Outlook
- Lead: Short-Term Weakness
- Nickel: Still The Laggard
- Zinc: Still A Surplus Market
- Table: Select Commodities - Performance And BMI Forecasts
- Table: Global Commodities Strategy
- Table: BMI Steel Forecast
- Table: Steel Forecast
- Table: China - Largest Listed Metal Producers
- Aluminum Corporation of China (Chalco)
- Table: Chalco - Key Financial Data
- Angang Steel Company
- Table: Angang Steel - Key Financial Data
- Baoshan Iron & Steel
- Table: Baoshan Iron & Steel - Key Financial Data
- Cross Checks
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