this article is an example of the need for future greater copper
China’s Dirty Laundry Points Path to Next Metal Winners
By David Stringer Jan 14, 2015 11:08 PM PT
Photographer: Brent Lewin/Bloomberg
Employees package aluminum ingots at the China Hongqiao Group Ltd. aluminum smelting... Read More
China’s move away from a heavy industrial economy has led to bear markets in everything from iron ore to coal. It’s also created opportunity in the overlooked minerals that will feed its next phase of growth.
Those materials include bauxite -- the ore that’s used to make aluminum -- and the zinc, copper, natural gas and uranium used to make or power the millions more washing machines, air conditioners and cars that China’s 1.4 billion consumers are forecast to demand.
“We are seeing a transition,” Michael Elliott, sector leader for Ernst & Young LLP’s global mining practice, said by phone from Sydney. “We’ll see aluminum make a bit of a resurgence, copper will clearly be there and probably zinc will continue to rise.”
China has already surpassed Japan as the world’s largest consumer market after the U.S., according to Euromonitor International. It forecasts that about 90 percent of Chinese households -- or 470 million -- by 2030 will have annual disposable income of $15,000 or more, compared with 133 million households in the U.S.
The change is welcome news for mining companies that have been battered by the collapse in prices for the bulk commodities used to make the steel that drove China’s most recent phase of growth.
Rio Tinto Group (RIO), the world’s second-largest miner, is slowing spending in iron ore and coal, while flagging increased investment in copper and bauxite from this year. BHP Billiton Ltd. (BHP) sees electricity consumption driving demand growth in China for copper and is expanding mines.
‘Fantastic Opportunity’
China’s shift to consumption-led growth is part of a dramatic change that will offer a “fantastic opportunity” to the developed world, according to Stephen Roach, former chief economist at Morgan Stanley.
The nation already accounts for about half of all global sales of small appliances from vacuum cleaners to cooking devices, according to Euromonitor.
A typical washing machine contains about 7 kilograms (15 pounds) of aluminum and 2 kilograms of copper, putting those among the commodities on the upswing. Refrigerators typically have about 7 kilograms of copper and 4 kilograms of aluminum. A typical home needs around 125 kilograms of copper in wiring, tubes and other hardware.
Notwithstanding copper’s 12 decline this year on global growth concerns, the metal is forecast to jump 21 percent, according to median price forecasts for 2015 compiled by Bloomberg. China’s copper imports climbed to a record in 2014, according to customs data.
Citic Deal
Aluminum is predicted to climb by 16 percent this year and zinc by 13 percent, the forecasts show. In contrast, Citigroup Inc. expects iron ore may fall a further 15 percent this year.
China itself has already shown the way. Two years ago a unit of Citic Group Corp., the nation’s biggest conglomerate, made an almost unnoticed investment in obscure Australian miner Alumina Ltd. (AWC)
It wasn’t lost on Citic that Alumina plays a key role in the $76 billion aluminum market and buying the near 14 percent stake in the joint venture with Alcoa Inc. gave it slice of the world’s biggest bauxite and alumina producer with operations across five continents.
“You could say they picked the bottom of the market,” said Jonathan Li, Melbourne-based executive director of Metamor Capital Partners, who has advised Chinese companies on resources deals.
More Bauxite
Alumina forecasts 20 million tons more bauxite will be needed in each of the next three years to meet rising demand from China, the Middle East and India, the Melbourne-based producer said in an e-mail. Fiona Chan, a Hong Kong-based spokeswoman for Citic Group at Brunswick Group LLP declined to comment.
“You can’t build a refrigerator without putting in our commodities, you can’t build a washing machine, you can’t build a car,” Sam Walsh, Rio Tinto’s chief executive officer, told investors at a Dec. 4 seminar in London. While a major shift to consumption-led growth in China has been anticipated, “it’s actually already happening,” he said.
Chinese homes will use 800 million air conditioners by 2025, double the number in 2013, Rio estimates. Those appliances alone may require about 9.4 million metric tons of copper, based on the 23.6 kilograms used in a typical unit.
Fundamental Demand
Long term fundamentals for copper are positive on demand from China, Andrew Michelmore, the chief executive officer of mining company MMG Ltd., told reporters today on a conference call.
China’s move to cut pollution is another driver for copper. A nuclear power station requires 2.5 tons of the metal for every megawatt of capacity, almost double the amount needed in a coal-fired power station. The nation will probably add about 132 gigawatts of nuclear capacity by 2040, more than the current capacity of the U.S. and Russia combined, according to the International Energy Agency.
China’s “dependence on imported material will increase, even in infrastructure,” said Ernst & Young’s Elliott. “As every month goes by, the proportion of imported materials in the total consumption increases. That dependence is not going to change, in fact it’s going to grow.”
To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net
To contact the editors responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net Keith Gosman
China’s Dirty Laundry Points Path to Next Metal Winners
By David Stringer Jan 14, 2015 11:08 PM PT
Photographer: Brent Lewin/Bloomberg
Employees package aluminum ingots at the China Hongqiao Group Ltd. aluminum smelting... Read More
China’s move away from a heavy industrial economy has led to bear markets in everything from iron ore to coal. It’s also created opportunity in the overlooked minerals that will feed its next phase of growth.
Those materials include bauxite -- the ore that’s used to make aluminum -- and the zinc, copper, natural gas and uranium used to make or power the millions more washing machines, air conditioners and cars that China’s 1.4 billion consumers are forecast to demand.
“We are seeing a transition,” Michael Elliott, sector leader for Ernst & Young LLP’s global mining practice, said by phone from Sydney. “We’ll see aluminum make a bit of a resurgence, copper will clearly be there and probably zinc will continue to rise.”
China has already surpassed Japan as the world’s largest consumer market after the U.S., according to Euromonitor International. It forecasts that about 90 percent of Chinese households -- or 470 million -- by 2030 will have annual disposable income of $15,000 or more, compared with 133 million households in the U.S.
The change is welcome news for mining companies that have been battered by the collapse in prices for the bulk commodities used to make the steel that drove China’s most recent phase of growth.
Rio Tinto Group (RIO), the world’s second-largest miner, is slowing spending in iron ore and coal, while flagging increased investment in copper and bauxite from this year. BHP Billiton Ltd. (BHP) sees electricity consumption driving demand growth in China for copper and is expanding mines.
‘Fantastic Opportunity’
China’s shift to consumption-led growth is part of a dramatic change that will offer a “fantastic opportunity” to the developed world, according to Stephen Roach, former chief economist at Morgan Stanley.
The nation already accounts for about half of all global sales of small appliances from vacuum cleaners to cooking devices, according to Euromonitor.
A typical washing machine contains about 7 kilograms (15 pounds) of aluminum and 2 kilograms of copper, putting those among the commodities on the upswing. Refrigerators typically have about 7 kilograms of copper and 4 kilograms of aluminum. A typical home needs around 125 kilograms of copper in wiring, tubes and other hardware.
Notwithstanding copper’s 12 decline this year on global growth concerns, the metal is forecast to jump 21 percent, according to median price forecasts for 2015 compiled by Bloomberg. China’s copper imports climbed to a record in 2014, according to customs data.
Citic Deal
Aluminum is predicted to climb by 16 percent this year and zinc by 13 percent, the forecasts show. In contrast, Citigroup Inc. expects iron ore may fall a further 15 percent this year.
China itself has already shown the way. Two years ago a unit of Citic Group Corp., the nation’s biggest conglomerate, made an almost unnoticed investment in obscure Australian miner Alumina Ltd. (AWC)
It wasn’t lost on Citic that Alumina plays a key role in the $76 billion aluminum market and buying the near 14 percent stake in the joint venture with Alcoa Inc. gave it slice of the world’s biggest bauxite and alumina producer with operations across five continents.
“You could say they picked the bottom of the market,” said Jonathan Li, Melbourne-based executive director of Metamor Capital Partners, who has advised Chinese companies on resources deals.
More Bauxite
Alumina forecasts 20 million tons more bauxite will be needed in each of the next three years to meet rising demand from China, the Middle East and India, the Melbourne-based producer said in an e-mail. Fiona Chan, a Hong Kong-based spokeswoman for Citic Group at Brunswick Group LLP declined to comment.
“You can’t build a refrigerator without putting in our commodities, you can’t build a washing machine, you can’t build a car,” Sam Walsh, Rio Tinto’s chief executive officer, told investors at a Dec. 4 seminar in London. While a major shift to consumption-led growth in China has been anticipated, “it’s actually already happening,” he said.
Chinese homes will use 800 million air conditioners by 2025, double the number in 2013, Rio estimates. Those appliances alone may require about 9.4 million metric tons of copper, based on the 23.6 kilograms used in a typical unit.
Fundamental Demand
Long term fundamentals for copper are positive on demand from China, Andrew Michelmore, the chief executive officer of mining company MMG Ltd., told reporters today on a conference call.
China’s move to cut pollution is another driver for copper. A nuclear power station requires 2.5 tons of the metal for every megawatt of capacity, almost double the amount needed in a coal-fired power station. The nation will probably add about 132 gigawatts of nuclear capacity by 2040, more than the current capacity of the U.S. and Russia combined, according to the International Energy Agency.
China’s “dependence on imported material will increase, even in infrastructure,” said Ernst & Young’s Elliott. “As every month goes by, the proportion of imported materials in the total consumption increases. That dependence is not going to change, in fact it’s going to grow.”
To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net
To contact the editors responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net Keith Gosman
