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Jan 2008 - China Consuming

China Continues Steady Consumption of Metal

This column is based on observations made during our (ERA) 2-week visit to China in November 2007 when we attended the China Mining Conference in Beijing. Before the conference we visited the properties of Golden Tiger (GTX) in western and eastern Guangxi, so gaining experience of what is happening in some of the rural areas of China, besides Beijing and Guangzhou.

Perhaps a slowdown in China’s metals demand will occur around the Olympics as Beijing has stated that it wants to have fewer cranes around at that time (8 August 2008). However, currently Beijing is in frantic construction mode.

We travelled on the new No.5 line (which we had seen under construction two years’ ago in November 2005, as reported in the Goode News column on page 16 in the February 2006 Issue 125 of Paydirt), that slices north-south through Beijing. China or at least Beijing’s method of installing a new underground is simply to lift up the central strip of a road, put in the underground and resurface the road over it.

The new No 5 line is about a 15min walk from the Olympic (Bird’s Nest) Opening Ceremony Stadium, although by Aug 2008, the No.10 line and its Olympic link should be completed, with many more to come according to a recent RIO presentation. The new line is like the Singapore or Hong Kong underground, with sliding doors on the platforms co-ordinated with the train’s doors opening and progress lights within the trains themselves. In Beijing though, some underground stations also have carved marble pillars and staircases. All the original underground stations were in the process of being transformed into card usage (currently paper tickets are used at 2Rmb [30c] for a journey of any length).

The preparation for the Olympics continues to take shape with some of the previously built-up areas gradually becoming landscaped water features and parks.

On surface, Beijing’s older buildings including office blocks are gradually being replaced as illustrated at Guomao (one of the main business districts) in the city, and the new CCTV building which bears resemblance to a giant meccano set. The schematic placard picture of the building does not do it justice, only in Figure 1 adjacent to skyscrapers does its size really become noticeable.

As can be seen in Figure 1, we saw a number of blue skies over Beijing (after winds had blown away the smoke from burning-off the rice fields). It was actually even possibly to see the distant mountains (~50km away) at the end of some of the streets.

Throughout China, the freeway and road construction continues as illustrated in Guangxi, which is now criss-crossed by new freeways, with a few more additions to come and all completed in about 5 years. Also in Guangxi, road construction has not been limited to freeways, just as much effort has gone into some rural roads. Interestingly the sides of these rural road cuttings were covered in “sheets” of a fabric to promote vegetation growth to “hold” the soil, compared to the concrete structures used along the freeways (similar to that shown in Guizhou in the June 2004 issue of Paydirt).

In Nanning while visiting Golden Tiger Mining (GTX) we stayed at a Best Western hotel. The hotel brochure contains a map of its new 30-hotel chain in 14 of the south and eastern Provinces of China. Some were in the final stages of construction, only a couple were refurbishments of older hotels, the rest were all brand new multi-floored skyscrapers completed in the last 3 years or so.

In Nanning we took our (to date) annual photo of the progress behind the Wharton hotel, with the foreground at the back of the hotel gradually being cleared. The skyline continues to fill, in fact the bulk of the buildings in the city were completed in the past 5 years, and it has now become a case of “spot the old building”. A new bridge was also under construction across the river, while the skyline has again become littered with crane “factories” building more blocks of apartments, and on the outskirts of the city, vast areas are being flattened as the city continues to spread.

Almost every major airport we landed at was adding another massive terminal extension, such as at Guangzhou and Beijing. Elsewhere in the country, estate building, new towns/cities, new areas in villages were all in progress, even in Yangshuo south of Guilin in NE Guangxi [which Singapore Airlines now flies directly into]), a replacement/upgrade of the town area was underway. At Beijing the second freeway to the airport has been completed, and a third was now underway.

In their presentation, Vale (CVRD) stated that this was the first time that the developing countries in the world were in synchronised growth mode, with China being followed by India, South America (Brazil), and even Russia (who separately commented that they expected to plough some of the new tax windfall [from resources] into infrastructure). South Africa has already stated that it expects to spend US$24bn on infrastructure in the coming 3 years, while the Middle East has ploughed higher oil revenues into infrastructure too.

While China would love to have lower metal prices by any means possible for lower costs, the reality is they know what they require to achieve their future vision, and need to acquire orebodies worldwide to attain those goals. Hence China is also moving further into taking equity stakes in companies. Within China, a series of brand new 21st century cities are gradually emerging either as completely new cities, or replacement of parts of previous cities, linked by a new network of freeways, railways and airports.

Disclosure and Disclaimer: This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Figure 1. The New CCTV Building at Guomao In Beijing in November 2007GDNjan08

  • Written by: Keith Goode
  • Tuesday, 01 January 2008

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