BMI View: China's mining sector will face ongoing challenges from low mineral prices over the coming years. Government supported consolidation will support production growth, bu t, d epleting reserves, falling ore grades and the relatively short life span of domestic mines will further drive outward Chinese investment.
|e/f= BMI estimate/forecast. Source=National Sources, BMI|
|Mining Industry Value, USDbn||252.24||221.77||217.96||224.74||233.30||241.33|
|Mining Industry Value, USDbn, % y-o-y||-18.62||-12.08||-1.72||3.11||3.81||3.44|
Latest Updates & Structural Trends
While cooling Chinese economic growth will adversely impact mining operations, we expect the impact to vary across different mineral segments. Lead and copper mining production growth will decline less strongly than iron ore and lead, due to a more resilient price environment for these metals.
China's structural shortfall in domestic production combined with the government's desire for resource security will continue to spur overseas mining deals. Although China's reliance on imports will increase due to the country's depleting reserves, falling ore grades and the relatively short life span of mines, outbound investment will face more caution, as Chinese projects are increasingly faced with rising costs and project delays. As a result, Chinese firms' 2015 mining merger and acquisition activity (M&A) in Latin America slowed to USD2.1bn, a 72.8% y-o-y decrease from 2014. Chinese mining M&A activity in the Middle East and Africa also fell significantly, by 46.0% y-o-y, to USD135mn in 2015. Chinese metal investment in Sub Saharan Africa also dropped in 2015 to USD1.2bn, significantly lower than USD4.0bn in 2014 and USD8.4bn in 2013.
We forecast Chinese iron ore production to decline by 10.0% and 5.0% in 2016 and 2017, respectively. Chinese iron ore output will average an annual contraction of 4.0% during 2016-2020 on the back of low iron ore prices and weak steel consumption growth. In addition, a rising environmental regulatory burdens will reduce demand from steel mills for low-grade iron ore. This will limit domestic output, as Chinese ore grades declined from 66% in 2004 to 17% in 2014.
We forecast Chinese nickel production to slow as the sector will face significant challenges from slowing growth in fixed-asset investment, which will drag down demand for steel products, and by extension, refined nickel given its use in stainless steel production. We forecast Chinese nickel output growth to average 2.0% annually during 2016-2020, down from 4.8% previously.
We forecast lead mine production in China to reach 2.60mn tonnes (mnt) in 2020, averaging growth of 0.3% y-o-y during 2016-2020. This would represent significant slowdown compared to an average annual growth of 7.6% during 2011-2015. Despite our significant downbeat forecast on lead production growth, we expect China to remain the largest lead producer for the coming years, as China will account for 41.7% of global lead production in 2016.
We forecast Chinese tin mine production to reach 136.6 thousand tonnes (kt) by 2020, increasing at an average rate of 3.5% per annum. Despite the downshift in the Chinese economy, output growth in the tin sector will remain supported by the usage of refined tin in the electronics industry.
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Summary of BMI’s key forecasts and industry analysis, covering mining reserves, supply, demand and prices, plus analysis of landmark company developments and key changes in the regulatory environment.
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