Pay Attention to China: Mining Bullish Market Could Come Soon
China’s mining indicators could be behind of an upcoming rally for mineral commodities and mining stocks in global markets. Many publications online are arguing that the conditions are almost set in the Asian superpower to trigger a huge hike in the mining sector.
According to Capital Economics, a London-based research and consulting firm, China’s industrial metals demand numbers are really interesting.
The first key of the forecast is that July’s demand for metals is increasing, showing at the same time good numbers for the industrial and manufacturing activities. While growth is something common for China’s economic indicators, increased demand for metals isn’t.
Precious Metals Mining Leader
Just like a publication from Mining.com tells its readers, “China is the leader in extracting gold, zinc, lead, molybdenum, coal, tin, tungsten, rare earths, graphite, vanadium, antimony and phosphate, and holds a second place in mine production of copper, silver, cobalt, bauxite and manganese”.
So far, this is pretty clear for many people who catch up with financial news. But the same publication from this website is claiming that a recent BMI Research’s report is showing how the domestic mining output growth has slowed down.
This is especially important because while mining output decreases, industrial demand doesn’t. For mining companies outside China, this is a golden opportunity to boost their profits. The Asian country will have to import more raw material to satisfy the industrial demand.
The reasons why the mining output growth is going down are plenty. We can see how Beijing is making big efforts to make work environmental policies. At the same time, low prices and high costs are making damage to the business of extraction.
The main metals to consider in this forecast are copper, iron ore, nickel, lead, bauxite, zinc, and tin. All of them will suffer in the following years except for tin, which could actually enjoy an increase in growth.
For copper, outcome growth between 2006 and 2015 was around 9 percent annually. According to the analysts at BMI Research, this percentage will drop to 2 percent between 2016 and 2020. Nickel enjoyed a growth rate of approximately 6 percent during the same period. Now, that number could fall to 2 percent.
For lead, forecasted numbers are worst. The drop would be from 8 percent to less than one. Bauxite’s output growth was around 11 percent, now facing 2 percent for the following four years.
Zinc remained around 7 percent during the years between 2006 and 2015, now falling to less than one percent.
The real opportunity will come to iron ore companies overseas. This mineral enjoyed an outcome annual growth of 13 percent between 2006 and 2015. According to the same report, this number would reach negative ground for the following years, until 2020. The estimation is -4 percent.
Importation Was Always a Thing
Don’t get this report wrong. China was always unable to satisfy its industrial demand with its own domestic production. Importation was continuously a need to maintain the economy running at the desired rate.
Now, these pessimistic numbers could lead to a monstrous increase in imports. If you are wondering where you should put your money, iron ore stocks and commodities are a great alternative.
Demand and prices will go up soon, as China increases its purchases in the following months.
Mining.com also reported that China is quickly exhausting its metal reserves, mainly the gold and iron ore ones, demand has seen China’s gold buyers extend their reach to all major global mining companies, with a supply rate seemingly lower than their demand. While this is something fairly usual, there is an average rate for this to occur.
Global usage rates for gold and iron ore are at 4.9 percent and 3.8 percent. If we compare this numbers with the Chinese ones, we will notice some abuse.
China is reporting usage rates at 23.5 percent and 19.2 percent for gold and iron ore respectively.