The slowdown mining industry amid China’s New Normal Economy
---Experts’ views on mining industry prospect
Source: www.zgkyb.com Citation: www.agkyb.com Date: October 26, 2015
On Oct 21, 2015, the 17th CHINA MINING Congress and Expo was held in Tianjin. In the afternoon, just after the open ceremony, it drizzled in the rustling and howling autumn wind just as been deliberately arranged, which seemed to make the current sluggish mining market more “chilly”.
As the theme of the conference, “New Normal, New Opportunities, New Development” is a series of progressive wishes and hope despite of pessimistic market views, which evidently showed the organizer’s intentions and wishes about the conference.
Undoubtedly, China’s economy outlook had become the focal point of the conference, at least no one would expect to see a sluggish China. It is for certain that the new normal economic transformation of China who had once shouldered the rigid demands of the global mining industry, had struck the sensitive nerves of global mining industry.
Mr. Jiang Daming, minister of China Land and Resources, pointed out at the opening ceremony that at present, the global economy recovery lacked drive, investment declined, market volatility had exacerbated and the downward pressure was growing.
“In face of the complicate surroundings, we should be more determined and take concerted effort to encounter difficulties than any time before.” Wang said, “We should work in concert to discover the growth potentials, development opportunities and cooperation of global mining industries and advance the recovery and sound development of mining industry with greater determination and courage.”
Jiang Daming noted that with continued development of economic globalization, world multi-polarization and social informatization, it is our common goal and obligation to build a sustained and robust, inclusive, future-oriented global mining industry.
Jiang said,with the support of good long-term economic fundamentals, China’s mining industry and the global mining industry still have great development potential. With a growing demand for new energy, new materials because of the coming global new industrial revolution, the global economic transformation will bring in more opportunities for mining industry.
However, authorities’ great confidence about the future of mining industry failed to dispel doubts in the field.
Mr. Chen Jinghei, chairman of Zijin Mining Group Co., Ltd. stated that New Normal has become one of the highest frequency word on internet and medias, which also indicated that it has become the market consensus that China had entered the new normal state. It is the current features of China’s economy.
“It is unrealistic to expect the price of mineral product to return to the track of rapid increases.” Chen said, “Instead, I think the price of mineral products in the future 3 to 5 years will fluctuate around current level, some many continue to decrease. It is possible for the price to go upside but it will never reproduce the past "golden decade".”
According to Mr. Wang jionghui, assistant president and general manager of Mineral Resources Department at China Minmetals Corporation, metal mineral industry was experiencing severe challenges. Mining industry was closely related to macroeconomic performance. As the weak economic growth of China and other emerging economies, volatility of current capital market and expected strengthening Fed rate hike, most major mining investors and companies were worried about the prospect and made a fairly pessimistic judgment about the mining market in the following 3to 5 years. Some held that along with further declining demand for minerals, the price would continue to decrease and metal industry would in face of deep-seated readjustment. Some agencies even believed that it is the harbinger of a new round economic crisis.
Experts indicated that while large mining enterprises may avoid risks by reducing costs or diversifying businesses in the following one or two years, it is inevitable for small and medium mining to experience a brutal surviving competition. Besides, it is useless and harmful to the price return of commodities to maintain high production amid a lack of evident demand recovery.
“Currently, global mining industry continues to downturn and lacks of good signs” said Mr. Si Xinbo, deputy general manager of Silk Road Fund. As the global economy slowed down and the oil price hit a 5-year low, resulting in a continuing decline price of commodities, global mining industry is encountering the most sever challenges after 2008 economic crisis.
“With a surplus supply of mineral raw materials and processed product, minerals, mining assets and mining companies are in face of price crisis. ”Si Xinbo said bluntly, and there wouldn’t be any turnaround in the mining industry in the short term.
According to the report released by PwC ( Pricewaterhouse Coopers), in 2014, the top 40 global mining companies had lost $15.6 billion of their market value, and their market value decreased 16% than last year.
Nevertheless, BHP Billiton, Rio Tinto, Vale and other global mining giants refused to cut back production. And CVRD, one of the three iron ore giants in the world, announced that the company’s production would reach 88.2 million tons in the third quarter, hitting the highest single-season production of the company.
Mr. Kenneth Hoffman, director of Bloomberg Global Metals and Mining Research, stated that during 1980-1990, when commodity prices declined over 20%,mining companies would reduce capital expenditures and production, even reduce by 60% to 90% sometimes, to rebound commodity prices. However, the commodity price has fall into downturn for nearly 5 years currently, yet few mineral giants has taken any action except Glencore who declared to cut down production recently.
Some large companies worried that they would suffer huge loss if the commodities market rebounded when they cut down production. Some agencies attributed the no-reduce policy to diversified business. Hoffman said, most large companies choose to reduce cost on management so as to eliminate small companies that troubled by high cost.
It would undermine the market, said Hoffman, the iron ore price has fallen over 70%, from $190 in 2011 to about $44 per ton now. If the fall continues, it will be difficult for commodity market to rebound. The mineral price fall will also lead to reduces in geological prospecting investment, adding difficulties to metal exploitation in following years.
Currently, China accounted for 40% to 50% of total global demand for commodities. Delegates were still optimistic about China`s economy and its long-term market demand despite the negative impact of china’s slowdown economic on steel commodities and common metal demand. Madam PATRICIA M. MOHR, vice-president of Scotiabank and economics & commodity market specialist, pointed out that China would still be the leading power of global commodity market, which can be indicated simply from differences of the number of vehicles per 1000 people in China and other countries including the U.S. and Canada.
Is China in the new normal state a good mining investment prospect? Is global mining industry facing its “severe winter”? How long will the “severe winter” of mining industry last?
Mr. Wang Jiahua, vice standing president of China Mining Association, didn’t agree with the idea that global mining is in “severe winter”. He said that china’s economy is under reform and in a “shift period”, but it will still be the biggest supporter to global mining industry. Its demand for resources would be stable and in rapid growth.
Wang said he would prefer to compare the current period to fall, as fall is a season of harvest.“It is true that the “golden years” of mining industry when global mining companies can easily make money has gone, and now mining companies has to carry out reforms and improve productivity. But it is a bit hasty to judge that the global mining has entered “severe winter period”.” Wang noted. Instead, he believed that global mining industry is undergoing a new round of reform and transformation. Technical innovation and improving productivity would be the focuses for mining companies.
During the process, Wang said, global mining industry would be closely linked, especially the cooperation with China and it is time to establish a new mining order now. The international cooperation along the Silk Road Economic Belt and the 21st-century Maritime Silk Road initiated by China would have a significant impact on global mining industry.
Mr. Wang Jingbin, president of Beijing Institute of Geology for Mineral Resources（BIGM), indicated that the current short-term overcapacity and low price of mining product were mainly affected by sluggish demand as a result of slow global economic recovery. In the long-run, the minerals would be in a fluctuated uptrend and mining industry would still have a good prospect.
At present, world’s major minerals wilted and international oil prices was in a fluctuated uptrend and showed signs of stabilization after its sharp fall in 2014. With copper, nickle and tin’s price continued to drop and lead, zinc, aluminum price was relatively stable, prices of main precious metal and bulk metal was capped nearly at average cost of global production lines. Asserious shortage of investment in resources exploration in current years and mines were cutting down production, there were few breakthrough and discoveries.
“In this case, it is reasonable that prices will pick up as a result of future resource shortages. In addition, quantitative easing carried in worldwide recently may also lead to price upswing of commodities including minerals”, Wang added.
“Currently, there are more opportunities in overseas markets as international mines shrunk heavier than domestic ones and it would easier for acquisition.” Mr. Liu Yuchuan, chairman of Beijing International Mining City, stated. Liu pointed out that it would be a rare opportunity for Chinese enterprises to invest now as international mining price reached the lowest, many international mining companies’ value plummeted and capital chain ruptured and was in urgent need of foreign investment.
Mr.Wang Side, vice president of Chinalco Resources Corporation indicated that mining companies has shrunk dramatically now, with the average decline rate of western companies in 5 years reaching 60% and China-invested at 80%. Most companies would have to sell assets when they fell in difficulties. Various signs had showed that it is a good opportunity to invest in mining and the following 2 to 3 years would be a perfect period.
However, Mr. Wang weiping, director of Sinomine Resources Exploration Co., Ltd. reminded that blind acquisitions isn’t acceptable, China’s companies should make clear of their development strategic positioning and assess whether it can adopt to overseas market on the basis of its core competitiveness before investment. Once decided to invest overseas, strategic direction and objectives should be set, Wang suggested.
Driven by adjustments of global manufacturing pattern and a new round of manufacturing infrastructure, the following 2 to 3 years would be a new opportunity for global mining industry, but it would be unlikely to reach or exceed last peak, according to experts and scholars.( Li Ping)
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