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Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including Daily Alerts, monthly regional Insights, and in-depth quarterly Country Forecast Reports.

China Metals Report Q2 2014

Published by Business Monitor International on Feb 19, 2014 - 86 pages
PDF - Download Now with 3 Quarterly Updates format - Download Now
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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.

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 fixedasset investment and towards private consumption will significantly dampen appetite for constructionrelated materials. In particular, metals such as steel and refined nickel will be adversely affected due to their heavy usage in the construction sector.

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.

Government plans to significantly consolidate the metals and mining industry will continue to gain traction in the coming months, particularly with growing environmental concerns and increasing scrutiny on local government debt. Consolidation of the metals' industry will be driven by 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.

However, we are aware that efforts aimed at consolidating the Chinese steel industry are susceptible to several roadblocks. First, anecdotal evidence suggests that local governments, reliant on steel revenues, often idle furnaces only for a period of time long enough to escape the central government's attention. Second, some of the furnaces that were torn down in Hebei had in fact been sitting idle for some time. Third, it is estimated that the potential job losses stemming from all state-required capacity cuts could reach as high as 200,000, a figure that could trigger widespread social unrest amidst the slowdown of the Chinese 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. For instance, China's edict to more than 1,900 companies to shut excess production capacity across many different sectors in 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.






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