LONDON (Mineweb.com) --News over the past week that China’s Baosteel had conceded a 9.5 percent price increase in iron ore price with, firstly CVRD, and then with BHP Billiton and Rio Tinto on Friday evening, on behalf of all the Chinese importers, suggests that the country’s phenomenal growth rate shows no sign of diminishing.
While differences in overall supply/demand patterns for other metals may vary, as may be the prices achieved, there seems little doubt that the Chinese industrial sector itself sees little sign of any slowdown in demand. This bodes particularly well for those base metals likely to remain in short supply in the near term, like nickel, zinc and lead. It would also suggest that, short of a major collapse in western economies, which seems less likely than it did a month or so ago, the price scenarios for base metals in general, are likely to remain positive, still driven by increases in Chinese demand.
While that country may be working to make itself less reliant on imports, there is little sign of this materialising for many commodities, and certainly domestic mine output is not growing enough there to impact significantly on current import levels. Indeed these are mostly likely to continue to rise for at least the next year. China’s growth may be slowing marginally, but at its slowed down levels it is still far, far in excess of what western nations might consider the norm.
So, to bring some Christmas cheer to raw materials and mining stocks investors, demand is likely to remain strong for the foreseeable future. There will be fluctuations in prices, but it would not be too far fetched to suggest the metals where supplies are stretched will test their highs again in 2007. Even copper, which has taken quite a knock recently may see some recovery.
As China’s economy continues to grow rapidly, and as the benefits filter down to the population in terms of increased wealth, consumer demand will continue to grow, putting further demands in the way of the manufacturing sector there. This is a vicious cycle with growth fuelling demand which in turn fuels more growth. As the world as a whole becomes wealthier, while commodity resources are not being replenished at the same rate, prices will continue to rise. Perhaps the supercycle isn’t dead after all!
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