* Slower 2012 economic growth to cap gains in commodities
prices
* Oil growth slows to 3.9 pct, still needs 370,000 bpd
more-IEA
* Copper demand to rise over 500,000 T even at lower 7 pct
growth
* Agricultural commodities, coking coal growth to accelerate
By Fayen Wong
SHANGHAI, March 31 (Reuters) – China’s cooling economic
growth will cap gains in commodities prices and temper the
roaring earnings performance of mining companies. But easier
credit and fresh spending on infrastructure will likely drive a
strong medium-term outlook.
Soft manufacturing data last week coupled with warnings
about economic risks by two of China’s most influential
government think-tanks have shaken confidence in the strength of
commodities demand in the world’s No. 2 economy, hammering
miners’ shares and pulling oil and base metals prices lower.
Beijing has lowered its 2012 growth target to 7.5 percent
and is retooling the economy to focus on domestic demand and
away from exports. The lower target may mean the end of a run of
often double-digit annual demand growth for commodities which
has strained global supply chains of everything from oil to
cotton.
A slower growth rate in what is now a much larger economy
than it was a decade ago still calls for big additional volumes
of raw materials every year, and many analysts say there is
little reason for the pessimism in some markets since China’s
target growth rate was revised. China’s economy often exceeds
the target, and Beijing still has plenty of options to stimulate
growth if they economy falters.
“These are short-term risks. Beijing is likely to intervene
to stimulate the economy over the coming months and that will
support miners in the medium term,” said Jonathan Stubbs, a
London-based strategist at Citigroup.
“The shift in focus to consumption means there is going to
be less support from China for rising commodity prices. So
mining companies will have to ‘sweat’ their assets and make them
work harder to enjoy outperformance.”
Top global mining companies such as BHP Billiton,
Rio Tinto, Anglo American and Xstrata,
reported large, but modestly weaker, half-year profits and said
they were keeping their billions in cash to chase deals.
Commodities prices, such as copper and iron ore, are already
trading at the upper end of the forecast ranges of many
analysts, with room for upside in the second half if China’s
economy rebounds.
Many miners also seem unfazed; with some warning that even
at a more sedate single-digit growth rate, they will still
struggle to find the additional millions of tonnes to feed
China.
“China is still the future for miners. It’s a command
economy and I can assure you it will be commanded to grow. It’s
currently engineering a very attractive soft landing. Don’t let
anybody freak you out,” Robert Friedland, CEO of Ivanhoe Mines
said at a mining conference last week.
FORGING AHEAD
Demand for industrial metals, especially iron ore and coking
coal, has had a tough time over the past six months due to
Beijing’s clamp down on the property sector.
But demand for the steel seems to be on the mend.
Steel mills have grown more confident about the outlook and
have stepped up their production as construction activities gain
pace on the back of warmer weather and the building of millions
of low-cost homes lifts consumption, traders said.
Steel futures jumped to their highest in two months this
week, while iron ore prices are at a four-month high.
To make up for falling exports, Macquarie argues that China
needs to boost domestic consumption which will prompt Beijing to
launch a number of stimulus programs, such as for cars and home
appliances – a move that would lift demand for copper,
aluminium, nickel and refined oil products.
Shen Jianguang, Chief Economist for Greater China at Mizuho
Securities, said separately that Beijing also needs to revive
the property sector to allow provincial governments to restore
land sales — a big source of revenue which is crucial in
preventing local government debts from turning sour.
China’s refined copper demand posted double-digit percentage
g rowth for 7 of the last 11 years to reach 7.63 million tonnes
in 2011, according to CRU Group. Even if growth averages 7
percent over the coming years, it will still gobble up an
additional 530,000 tonnes each year – an amount topping the
world’s No. 9 producer Poland’s annual output.
To fill that demand is no small feat, especially for a metal
which has been in supply deficit for most of the past decade and
with world supplies are only expected to rise by 770,000 tonnes
in 2012, according to estimates by consultancy Brook Hunt.
The International Energy Agency (IEA) sees oil demand
decelerating in the world’s second-largest consumer by 1
percentage point to 3.9 percent in 2012. That’s the lowest rate
of growth since 2008.
But that demand growth would still amount to 370,000 barrels
per day in 2012, higher than South Sudan’s daily output before
the country’s recent oil shutdown, and brings China’s outright
demand to 9.9 million bpd.
For iron ore, where Chinese imports have leapt from just 70
million tonnes in 2000 to 687 million tonnes last year, global
supplies are still playing catch up with demand.
China alone is expected to suck in 40 million tonnes of
additional ore in 2012, bringing total imports to 720 million,
more than half the total annual increase in supplies of 70
million tonnes expected this year.
As China embarks on building tens of millions of social
housing and developing its western provinces, where urbanisation
rates are still low, its iron ore imports are forecast to peak
at around 780 million tonnes in 2015, analysts said.
Miners are deploying billions of dollars on a capacity build
out to meet the demand.
The world’s top three iron ore miners, BHP, Rio Tinto
and Vale, plan to ramp up ore output
by more than 300 million tonnes over the next 3 years.
Top coal exporter Australia also has about $14 billion worth
of committed new projects and expansions under construction,
which will eventually add 80 million tonnes of coal.
“The super high-cost ones may struggle especially if they
are coming online in a cyclical downturn, but we are going to
need big expansions to keep up with growth in China and around
the world,” said Peter Hickson, an analyst at UBS.
“The planned projects may look like they’ll add a lot of
tonnes but issues such as delays will keep the market tight.”
