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Feb 2011 - Year End & China

  • Reading our introduction to last years’ comment dated 29 January 2010, little appears to have changed one year later, apart from the fall in share prices occurring earlier in January 2011, viz :
  • “I must admit that even after all this time, the recent falls (mid/late January 2010) in share prices and commodities on the basis of a China slowdown still comes as a surprise – as if China could suddenly grind to a halt. The market has yet to accept that China has a planned vision of where it wants to be and how it is going to get there for the next 20 years. The main beneficiary should be Australia because of its proximity and relatively high grade orebodies. We re-iterate what we have said before, if anyone gives a China view, ask them when was the last time they were there?”
  • In November 2010, after visiting Gryphon’s prospects in Mauritania and Burkina Faso we flew to the China Mining conference in Tianjin, and then saw some friends in Kunming (to get a greater feel for what is going on in China). After all, China is still the engine of growth for the commodity sector.
  • At China Mining, sessions are held covering the different commodities. Originally rare earths were planned to be covered, but then dropped and coal was excluded too. Perhaps China thinks it has or thought it had enough under control (which in the case of coking coal, it may have done as this was well before the QLD floods of January 2011).
  • Although China is trying to find ways of reducing the costs of various ores (possibly it will acquire its own shipping fleet), it felt that due to supply/demand gaps and hence shortages, the pricing pressures remained as scrap quantities reduce and India possibly reduces its exports (for its own domestic consumption) especially for copper (due to the emerging ETFs), and iron ore/steel due to the 3 majors (BHP, RIO & CVRD).
  • What was noticeable this year was the size of the booths at the conference and even Jinchuan manufacturing its own mining equipment as shown in Figure 1a. There is now a significant choice of mining equipment manufactured in China. China is also building self sufficient Circular Economic Parks centred on producing mines such as either coal or oil (there were nodding donkeys on the hills of the model) as shown schematically in Figure 1b. Datong (coal) has already built an operating one.
  • It was stated that China invested $301bn (2trn Yuan) during the 11th 5-year plan (2006 to 2010) to save energy and reduce emissions (hence the sudden slowdown at the end of 2010 in order for companies to try and meet their expected targets). In the 11th plan, more than 70% of coal-fired power stations installed the flue gas desulphurization (FGD) system. Greater reductions and energy savings targets are planned to occur in the current 12th 5-year plan from 2011 to 2015.

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Feb 2011 - Year End Review & China Comment

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  • Written by: Keith Goode
  • Thursday, 03 February 2011