china story interesting

http://www.news.com.au/couriermail/story/0,23739,20719491-3122,00.html

Summary: China increasing zinc production to satify own needs, cannot mine Iron Ore Australian grades, Iro Ore ++++




China to pay less for minerals

Mandi Zonneveldt

November 07, 2006 11:00pm
Article from: The Courier-Mail

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THE Australian mining industry has been warned that China will not continue to pay top dollar for metals and minerals, despite the country's ever-increasing demand for natural resources.
The stern caution, issued by the head of leading Shanghai-based commodities trader Penfolds, comes as Australia's reliance on exports to China reaches new heights.

The value of mineral exports to China has risen almost ten-fold in the past decade, from about $1 billion in 1995-96 to at least $8.5 billion last year.

But Joe Singer, the founding director of Penfolds, yesterday warned that the China story was evolving, from a fairytale of fervent growth to a more complex narrative – with consequences for Australian miners.

"Here in Australia the view is that whatever commodity you're going to make you're always going to be able to sell it to China at a higher and higher price," he said.

"One needs to be very careful of which commodities (you invest in) because the China story is changing. You can get gored by the bull."

Mr Singer, who speaks Mandarin, has been observing trends in China for more than a decade. He established Penfold in 1997 after senior roles with international trading companies Itouchu, Marc Rich and Glencore, and is in Australia this week meeting analysts and brokers.

Penfold has a minority stake in China's largest lead and zinc miner Western Mining. It is one of the few foreign companies to have been invited to take a stake in an operating mine in the country.

The company also has taken a position in Australian iron ore junior FerrAus and provides marketing services to a portfolio of clients including Teck Cominco and Zinifex.

Mr Singer said China, which has large mineral reserves of its own, had reacted to sky-rocketing resource prices by bringing on additional capacity.

The impact had already been felt in the alumina and manganese markets and he expressed concern yesterday about the long-term sustainability of the record high zinc price, now well above $US4000 a tonne.

"The thing with zinc is it's not the China story any more.

"They (China) are moving very quickly towards zinc mine production equals zinc metal consumption," he said.

"That's the benefit they have in China that we don't.

"They react to the pricing signals and they are putting on production."

He said China also had moved to control its own fate through industry rationalisation and increased regulation.

And he said the impact of third-world supply was not to be discounted, with 48 African leaders meeting Chinese President Hu Jintao at a summit in Beijing this week.

The Australian Bureau of Agriculture and Resource Economics estimates that the value of Australia's minerals and energy exports will surpass $100 billion for the first time this year.

Mr Singer said the outlook for the country's highest-value export, iron ore, remained healthy, with Chinese miners unable to compete on grade.

But Penfolds believes Australian coking coal producers will face competition from China's domestic industry.

China has been tipped as a large potential importer of Australian uranium, but the country's relatively small nuclear industry and its vast reserves of thermal coal used for power generation has Penfolds questioning its impact.

Mr Singer said China would continue to support nickel, copper, tin, tungsten and molybdenum producers.