Mr. Wang Jionghui: Global mining industry entered adjustment
Source: www.mlr.gov.cn Citation: www.chinamining.com.cn Date: October 27, 2015
With current global economic downturn and China`s economic development situation in the new normal, on CHINA MINING 2015, although many experts from home and abroad and scholars thought the future of the industry was very promising, and tried to shore up confidence in the global mining industry and dispel pessimism, there were a lot of people viewing this pretty carefully.
Judged from current mining situation, Mr. Wang Jionghui, general manager assistant of China Minmetals and mineral resources department general manager in the separate forum of the congress said," In CHINA MINING 2012, I made a speech about an article entitled Mining of Tomorrow , arguing that the analysis and future trends of anticipation were based on the global economic situation, and exploration development status, and mineral supply and demand, and market trend, and rigid cost changes and capital markets situation. We pointed out that the global mining industry has entered a downtrend channel, stepping into the ` winter ` season, but we just do not know if this winter is ` warm ` or ` cold `.” Wang Jionghui said, "now, we are going through a ` cold ` winter.”
From the point view of Wang Jionghui, global mining industry has experienced " a golden decade" prosperity and three consecutive downward years, entered the period of adjustment.
Crazy prices dive caused by oversupply
Mining was closely related to macroeconomic performance. China and other emerging economies were going into inadequate growth, and an interest-rate increase from the Federal Reserve was expected to strengthen and high volatility in recent capital market. All those factors currently contributed that the major mining companies and investment institutions had expressed concern about the prospects for mining, and made a pessimistic judgment of the future market in 3-5 years, thinking that the demand would fall further, prices of mineral products would continue to be downward, and extrusion capacity was further squeezed out. In this context, minerals industry would still in deep adjustment, and even some institutions considered the global financial crisis would come once again.
This view made sense, Wang Jionghui considered, the current macro environment was complex, and there were a lot of uncertainties. Global economic slowly recovered these years. United States, and India and the EU began to have a prosperous economic data, but other major economies were in the difficult period of restructuring. In particular, the situation of emerging economies is not optimistic. Russia and Brazil were into a deep recession, China`s economic restructuring and industrial restructuring were still in great pressure.
Wang Jionghui said that the recent capital market turmoil added to the concerns about crisis. Although the governments have introduced a number of stable measures, but the market confidence remains inadequate.
"Due to macro-economic downturn, the demand for metal products is reduced. The overall supply exceeds demand. Due to lack of confidence, metal mineral industry is still in the period of shock adjustment.” Wang Jionghui believed that main factors affecting metal mineral products price movement was that the demand China`s emerging economies has weakened.
China demanded the many global commodities. The consumption of iron ore, steel and other ten kinds of nonferrous metals ranked first in the world. The demand in China played an important factor in rising prices since 2000 commodities "Super-cycle". 4 trillion investments in 2009 also fully demonstrated China was supportive of metal mines products market. However, since the slowdown in economic growth in 2014, China was in the way of economic growth and industrial structure adjustment, which decreased demand for commodities, and the prices support has been decreased.
"Weak demand and oversupply make metal ore prices under pressure.” Wang Jionghui said, the decline of the commodity prices was essentially due to oversupply.
--Several large mining companies had low cost mine which continued expansion abroad, while the global demand slowdown, so excess capacity increased sharply.
--The global production capacity of copper released from demand for 122,000 tons last November to 151,000 tons of excess supply in the first half of this year, and the demand has gradually reversed;
Aluminum--the situation was different at home and abroad. The supply and demand were in a balance in the world. With slow inventory reduction, the gap of supply was about 380,000 tons in the first half, while China was in overcapacity with sufficient inventory, the supply exceeded demand;
--The short supply of lead and zinc last year was ended. The global production of refined lead was 5.14 million and zinc were 7 million tons in the first half, with consumption of 5.12 million tons and 6.84 million tons respectively. They were currently in a state of balance between supply and demand;
--The demand of nickel in aerospace and other high-end equipment manufacturing remained strong, the oversupply has improved compared to last year, but there were high inventories;
--New minerals, tungsten, antimony, rare earth metals and other raw materials demand continues to slump with continuous oversupply.
Nevertheless, Wang Jionghui believed that current price levels were already at a low level. With the support of cost, the prices were much less likely to continue downward sharply. But it also faced some uncertainties, such as the big miners, emergency operations strategy, and so on.
"The dollar is entering into the appreciation cycles, so the dollar-denominated commodity prices will plummet.” Wang Jionghui said the historical data showed that the dollar index and commodity prices generally were in negative correlation. Since the second half of 2014, the dollar index rose from 80 to 95, appreciation of about 20%.
Wang Jionghui believed that prices of mineral products fluctuated according to financial property. Iron, copper and other commodities as a kind of financial asset, the price is also affected by investment demand, money supply and other factors. As the dollar had strengthened and the Fed to raise rates expectations was rising, investors expected commodity prices would remain in low turbulence. With gradual outflow of financial capital in commodities futures market, it turned to United States real economy and the stock market, leading to volatility in commodity prices.
"Born again" opportunity door slightly opened
Currently, numerous agencies saw that the mining is bearish, it would remain downward in the mining industry, and market pessimism spread out. However, mining was a cyclical business. Where there were peaks there were also valley. Wang Jionghui believed that recovery of global economy required support, and to judge how far the next spring of the global mining would come, the key factor was emerging economies` development and structural transformation led by China
Wang Jionghui said that although China`s economic growth had slowed but still in a period of middle high development, and still the driving force and engine for the development of the world economy. At present, China`s "three strategies”, and a series of special policies had injected new momentum to promote mining "pick up". New urbanization and industrial structure adjustment in China were in a good momentum. A variety of signs showed that, a series of investment and economic stimulus policies in almost two years had been effective, which was expected gradually to emerge in the first half of next year.
Wang Jionghui admitted, China would still maintain a strong demand for metal products. China’s industrialization and new urbanization was still in the process of medium-term development, which remained rigid demand for metal raw materials. Iron ore, steel, ten kinds of nonferrous metals consumption still ranked first in the world. Oil, natural gas and energy were in great demand. From the perspective of economic growth, GDP remained 6%~7% growths. The demand was still very impressive.
"It is estimated that in 10-20 years there will continue to be demand peaks in the future." From the perspective of downstream demand, driven by rural power grid construction and urban power grids, it was expected that demand for copper products will continue to grow rapidly in the coming years, but the new urbanization, regional integration, construction of key projects will continue to be an important support to the demand of steel. ” Wang Jionghui said.
In his view, the "three great strategies", economic restructuring and industry structure adjustment and other specific policies were not only opportunities for Chinese companies and but also the opportunities for global mining companies, which would effectively shorten the period of adjustment of mining.
First of all, China was experiencing the largest new urbanization in human history. The three strategies of the nation --"One Belt and One Road", Collaborative Development of Beijing, Tianjin and Hebe, urban agglomeration development plan of the Yangtze River economic zone and the Bohai region, would promote the coordinated development of large, medium and small cities and small towns. Meanwhile, infrastructure connectivity, industrial structure adjustment upgrading and others had a lot of space for development, which would create the new engine of China`s economic growth and restructuring upgrading.
"The integration of new urbanization integrates new energy, new technologies, new materials, making the metals and minerals industry to a new level of development. ” Wang Jionghui said that, with the exception of bulk raw materials such as copper, iron, lead, zinc, other mineral closely related to human existence, such as uranium, shale gas and other clean energy, new technologies minerals such as lithium, rare earth, minerals, potassium, phosphorus, potassium, phosphorus and other modern agricultural and water resources, would present a trend.
Secondly, China was accelerating the pace of reform to stimulate the market for the allocation of resources. A number of policies and measures had been issued one after another."This year, the State introduced `2025` made in China, ` suggestions of deepening economic system reform work ` and other a range of policies around the downstream of metal mining industry , State-owned enterprise top-down reform with top design combined with the demand for change from the bottom up, it aimed to inject new vitality into the development of enterprises. ” Wang Jionghui believed that this would create a new industrial revolution, which put forward higher requirements of traditional mining industrial structure adjustments.
Once again, the core of "One Belt and One Road” was the infrastructure and connectivity. Wang Jionghui said, as the implementation and further development of the strategy of "One Belt and One Road" in China, it would bring a lot of infrastructure needs and expand investment and economic trade cooperation space in the countries along the road. It would accelerate international cooperation capacity, and bring new impetus for development of mining industry.
Related statistics showed, "One Belt and One Road" propose would cover 4.4 billion people, with GDP more than $ 20 trillion, 63% and 29% of the world respectively.
Wang Jionghui believed that now the new trends of economic operation and new economic bright spot began gradually appear. The next few years, China`s three major strategy would enable China`s economic structure to change from investment-driven to demand-driven. This gave birth to enormous room for development and the birth of a new growth model, becoming China`s new kinetic energy.
In addition, India and other emerging economies and developed countries would also play an important role in demanding for mineral products. Wang Jionghui believed, economic growth of India boosted, and urbanization and industrialization were running step by step. Current non-ferrous metal consumption was only about one-tenth of China, and it would grow significantly in the future. China, India and neighboring countries, making the rapid development of the Asia-Pacific region play a more important role in the global economy.
Based on the reasons set out above and emerging signs, Wang Jionghui said that we were confident that, driven by Chinese economy, “Up" confidence in the mining industry would gradually recover, and downward trend would be reversed. The business would stabilize and gradually bottom out, ushering in a new period of development opportunities.
Wang Jionghui believed that specific links to industries would provide opportunities in some areas of excellent enterprises in China.
In terms of resource side, in the face of downward pressure, several major international mining companies had disposal of mining assets in order to control risk, including relatively high quality assets. For companies to global resource allocation, it was a low-cost access to high quality resources and opportunities to optimize the combination of resources. Of course, the mining company needed to focus more on differences in resource selection and configuration according to their own advantage and development strategy. In recent years, China Minmetals seized the opportunity to buy overseas assets such as the State copper mines of bath.
In terms of circulation, commodity circulation industry in China was in face of lack of credit system , the low degree of integration of logistics, increased international giant monopoly and so on. With the capacity to reinventing itself, effort in the industry transformation was likely to achieve new breakthroughs. The development of commodity could improve circulation efficiency and gain enormous room for growth. Using of policy on reconstruction of China`s participation in the new trade order and actively developing overseas markets would have an opportunity to improve the voice of global circulation. Among those with a strong integrated strength, advantages of industrial operations, and large enterprises with better brands would have an important opportunity.
In terms of material application, new materials, intelligent equipment auto industry would achieve rapid development, and high demand for metals would continue to expand. the price of back- end processing products with high profits is rigid. China was rich in resources, but the whole industry chain is not well developed. The added value of technology and economy was low. Among those companies which had domestic resources or stronger integrated power would also usher in an important opportunity.
Mining would undergo profound change in the future
"The competition in the future, was not just a competition of product or channel, but competition of effective integrated system of resource, even concurrency conciousness beyond the competition.” Wang Jionghui said, at present, Internet, cloud computing, big data, and other innovative technology was rapidly changing the traditional business and market rules.
He said, we lived at this time of change, we could not avoid neither technically and conceptually. Only with active of faith could we face the challenge of market environment. We should take advantage of "Internet +" and other innovation technologies to build flat efficient of organization, technology innovation platform, and financial service platform, and electric business platform, advance management, and manufacturing, and financial and trading. Therefore, we could promote the optimization cost of management, manufacturing, financing and transaction in order to improve quality and efficiency and strengthen competitiveness.
To take the Minmetals group for example, China Minmetals was a trade-oriented enterprise. In the last 10 years, through the strategic transformation and further development, it achieved two-wheeled development of resources and trade. Wang Jionghui said, in recent years, China Minmetals has actively undertaken the national strategies mission, strengthening resources and markets layout at home and abroad, speeding up structural adjustment and restructuring upgrading, initially building the chain of metal ores industrial integration and globalization.
However, Wang Jionghui admitted, although China Minmetals developed fast in recent years, but they also had some difficulties and had to solve the problems. To resolve these difficulties and problems, they had to not only rely on their own efforts, but also to learn from peer-excellent enterprise, and established a new partnership to realize win-win progress.
Wang Jionghui said that at present, China Minmetals was making bold innovation in portfolio optimization, improving cost of space, rebuilding commodities trade capacity rebuilding, industrial chain driven by innovation, and deepening internal reform of enterprises.
First, we should make clear of the responsibilities and missions, with further focusing or metallic core business and strengthening of layout differences in resources and markets at home and abroad. we should be “protector of national resources safety, innovator of resource industry, drivers for a mass circulation of transition" in order to build a world-class metal mining group.
Second, we should return to the nature of business to focus on resources and capital, and continue to get access to high quality resources, optimize the allocation of resources. We should make innovation in the development in mining content, and maximize the value of their assets. Minmetals would continue to fulfill central social responsibility, pay attention to work safety and environmental protection; They would use of new ideas, new technology, new management processes, continuously to improve the operation mode of modern production and optimize mining costs in order to control the cost which could be designed.
Third, we should control the risk, practice skills, make innovation, and increase investment in human capital. We should match the strategic vision of world-class metal ores group, deepening reform. We should rely on our own resources, strengthen external cooperation, and concentrate the outstanding scientific and technological personnel. We should increase mining and beneficiation-metallurgy technology and the research of new materials, to deep the chain of industry value and make greater contributions to the development of the metals and minerals industry.
(Li Ping)
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