Outlook for China Mining Industry in 2012
Source: Portal Website of Ministry of Land and Resources Citation: China Mining News Date: Jan. 10, 2012
2012 is the Year of the Dragon and thus the real year of China. Can China still act as the locomotive of world economy after 2008 international financial crisis when the global economy is affected by Europe’s debt crisis? Both Chinese and worldwide foreigners are waiting and seeing. Understandably, there are somewhat complicated feelings from the foreigners.
In the eyes of media, the year of 2012 is so special, not for doomsday but for world political explosion. 59 countries and regions will have their new president and parliamentary election this year, and China will also undergo leadership succession. Westerners prefer talking about the uncertainties in China in their harangue. Since Asian financial crisis in 1998, they have been keeping a watchful eye on China. The never-fall image of Chinese economy always discomforts them.
2012 is indeed a year with both challenges and opportunities for the world and China. However, the basic situation of China’s economy is not changed. China is now on the industrialized, urbanized and agriculture modernized development stage. Against this backdrop, curse will be no use to its stable economic growth. Despite the severe external environment, the huge internal demand market still leave a great space for economic growth in China. There is realistic basis for China’s stable economic progress in 2012. Mining industry, as a fundamental industry to support national economic development, may learn a lot in the fickle international economic environment.
Coal market may see a reverse
The strong coal market over the past few years may see a reverse in 2012 under the pressures of both overcapacity and shrinking demand. Except for special coal and scarce coal, the prices of thermal coal and chemical bituminous coal will hardly hike. It is even fortunate if the price can remain at its current level. This is the professional analysis from coal industry insiders.
During the “Eleventh Five-Year Plan Period”, China reaped great achievements in both production and sales of coal supported by brisk demand at home and abroad and uprising global oil prices, which led to increase of intermediate price of energy and resource products. In 2010, China produced 3.24 billion tons of coal, up 1.13 billion tons as compared with output in 2005, indicating an average annual growth of 10.71%. Correspondingly, coal prices experienced sharp rise during the period. For instance, the price of 5,500 Kcal/kg thermal coals at Qinhuangdao port averaged RMB 450 per ton in 2005, while it reached as high as RMB 815 per ton in 2010, growing at an annualized rate of 16.22%. Some analysts predicted the end of coal market boom.
First of all, overcapacity appears. Statistics show that the combined capacity at China’s coal mines reached 3.7 billion tons in 2010, accounting for 87.57% of the country’s coal production of 3.24 billion tons in the year. Many large mines are projected to be put into operation following restructuring efforts for coal sector in such provinces as Shanxi, Henan, Hebei, Inner Mongolia, Shaanxi, Heilongjiang, Guizhou, Shandong and Anhui. Moreover, large-scale modernized mines, under the government’s plan to invest RMB 4 trillion in 2009, are forecasted to start production in 2012-2013. These new operations will enable China’s total coal capacity to reach 4.2 billion tons in 2012, even touching the target of capacity for 2015 set by the government. The excess capacity will bear down on coal prices.
Secondly, domestic and overseas macroeconomic situation will exert an influence. In 2012, local authorities will still take proactive measures to boost local GDP despite of further slowdown in China’s economic growth. Coal, petroleum, natural gas and other resource products can not only stimulate local GDP growth, but bring considerable fiscal revenue. What’s more, they have been in large scale, so local government is bound to urge release of their capacity. In this circumstance, coal enterprises have to ensure high and stable output and dramatically increase coal supply. Inner Mongolia and Shanxi, leaders in China’s coal production, saw coal output exceeding 800 million tons in 2011 and will strive for a higher target of 900 million tons in 2012. Besides, Xinjiang, Hebei, Guizhou, Henan and Ningxia guarantee to achieve an annual growth of over 14% in coal production this year. Coal production provinces will continuously raise coal output to ensure no sharp economic downturn. This will inevitably cause oversupply in coal market and inhibition of price drop.
In addition, demand shrinking worsens oversupply in coal market. Domestic and overseas coal demands may not increase substantially, or even decline in 2012. Some experts said, continuous implementation of real estate regulation policies would not only make for squeezing out real estate bubbles and preventing and reducing financial risk, but also act as a drastic measure to high energy consumption enterprises, which would effectively inhibit consumption of resources and energy such as coal, petroleum, electrical power, etc.
Nevertheless, anthracite and high quality coking coal are scarce resources strictly controlled by the state and monopolized by a small number of enterprises. These enterprises are able to make the right decision about production plans in line with market demand and ensure the prices stay firm in 2012. Thermal coal and soft coal applied in chemical industry, unfortunately, will see prices loosening and even experience a fall in the year.
Nonetheless, some experts state that despite the gloomy outlook as a result of demand decline and high inventory, coal enterprises see little odds that coal prices will dive in 2012 on tight capacity for coal rail transportation and on the fact that they still have a big say in coal pricing when consolidation efforts in coal sector continues in major coal-producing regions.
An important factor is that for geopolitics reason, oil price will remain high in the future. Correspondingly, there is a relative price relation and complementary supply and demand relation between coal and oil, so coal price will hardly crash even if demand growth slows down. Apart from this, with transfer of coal production capacity to west areas, rapid growth of coal demands and continuous growth of inputs in main coal consumption areas, the coal transport bottleneck for railway will get worsened in 2012.
Iron ore price will fall
Steel industry of China walked hard in the past 2011. Overcapacity and low profit rate still haunt the industry. Consequently, iron ore market suffered great ups and downs from soaring at the beginning of 2011 to diving at the end of October. Thereafter, iron ore price started weak market adjustment at the end of 2011, and this situation will probably continue in 2012.
It is pointed out by the insiders that production expansion of the foreign mines in the future is greater than the increase in the crude steel output of China. Therefore, there will be changes in the supply and demand pattern of iron ore. In 2012, the price fluctuation of iron ore will be more frequent, but the amplitude of the price fluctuation would be narrow, and the overall price will show a slow decreasing trend. The average import price of iron ore in 2011 is about 155 dollars/ton, and that in 2012 would be at about 145 dollars/ton.
There is an opinion that 2012 is a turning point for the Chinese steel industry. After a decade of rapid growth, the steel industry has piled many problems, such as production capacity surplus, low or middle end of product structure, low industry concentration, intense disorderly competition, lacking of reasonable and effective allocation of resources, increased energy supply and environmental pressures, the demands of main industries downstream industries entering the steady growth period, etc.
What’s more, as the last round of economic cycle is drawing to the close, the probability of economic downturn is increasing, the variables for global recovery are increasing, and there will be an obvious turning point in the industry supply and output in 2012, bringing the high growth in the past 10 years to an end. Meanwhile, affected by the decline in demands, the upstream cost will fall back from the historic high. Some experts believe that the steel industry will touch the bottom and rebound in 2012 if the structural adjustment accelerates.
In October 2011, China Steel Association officially launched the Chinese iron ore price index. After the stable operation of the index is approved by Chinese steel plants, it is an inevitable move to fight for the reorganization from the three iron ore giants. On the night of January 2, in accordance with the Chinese iron ore index jointly prepared by China Steel Association and China Chamber of Commerce of Metals & Minerals & Chemicals Importers & Exporters, it is shown that the iron ore price index of China in the end of December 2011 is 460.36 points, dropped by over 130 points compared with the initial 596.87 points (the first week in September 2011), and the amplitude is about 22%; wherein the imported iron ore index dropped from 659.5 points to 504.72 points. By the end of 2011, the stock of iron ore in main ports of China had reached 96.82 million tones, increasing by 32.2% compared with that of last year.
Data shows that the decreasing amplitude of the current domestic iron ore price is 23% compared with the high point at the beginning of 2011. The imported iron ore is decreased by about thirty percent. The iron ore price in the recent years remains high, which drives active investment in the iron ore field. The domestic mineral productivity in 2011 was released, and the output records were refreshed successively. From May 2011, the monthly raw ore output maintained more than 100 million tons, reaching 130 million tons in October, with the annual output exceeding 1.3 billion tons. Affected by the factors of the mine production expansion and slowed steel production growth, the relation between supply and demand in the iron ore market will be more balanced. It is predicted by the insiders that the break point of supply and demand might occur in 2012.
In accordance with the prediction of the U metal website, the global iron ore output will be up to 2.28 billion tons in 2012, and 2.7 billion tons in 2015. The monopoly degree of global mines will be decreased, the competition will be intensified, and the situation of oversupply will appear in the market.
In addition, great progresses in the control of foreign iron ore resources have been made by steel groups like Anshan Iron and Steel Group Corporation, Wuhan Iron and Steel (Group) Corporation, and Shandong Iron & Steel Group Co., Ltd.
In accordance with the Statistics of Metallurgical Planning Institute, part of the first-stage project of the Sierra Leone Tangkelili Iron Mine with the equity participation of Shandong Iron & Steel Group Co., LTD, has been constructed and put into operation; Carrara Iron Mine of Australia invested by Anshan Iron and Steel Group Corporation is predicted to be put into operation in 2012; Wuhan Iron and Steel (Group) Corporation also conducts iron ore resources development layout in the global range. The investment will be increased in 2012, so as to form equity mine productivity as soon as possible.
Unconventional oil and gas become a hot spot
Because of the high price of oil, people have turned their attention to unconventional oil and gas recourses. It is certain that the exploration and development of unconventional oil and gas will welcome a boom in 2012.
On Dec. 31, 2011, the National Energy Administration issued The 12th Five-Year Plan on Development and Utilization of Coal Bed Methane (Coal Gas). Till 2015, the coal bed methane output will reach 30 billion cubic meters, and newly proved geological reserves will be 1 trillion cubic meters. Moreover, the 17 plans prepared by the National Energy Administration have been completed, and will promulgate intensively this year.
On the same day, the Ministry of Land and Resources published the announcement of a newly discovered mineral on its official website. Shale gas is officially listed as newly discovered mineral, and will be treated as separate mineral to invest and manage. It is proposed in the 12th Five-Year Plan on Shale gas that by 2015, the investigation and evaluation of the shale gas resource potential would complete basically, with proven shale gas geological reserves of 1 trillion cubic meters and recoverable reserves of 200 billion cubic meters, and annual production would reach 6.5 billion cubic meters.
According to the instructions issued by the State Council, and taking into consideration the characteristics of shale gas itself and the exploration and mining progress in China as well as foreign experience, the Ministry of Land and Resources will develop related support policy to promote the process of shale gas exploration and exploitation and achieve large-scale development as soon as possible, which will help alleviate the shortage of oil and gas resources in China, improve the supply of natural gas, change China’s energy structure, increase the supply of clean energy to form a new pattern of oil and gas exploration and development.
To advance the exploration and exploitation of shale gas, the Ministry of Land and Resources has completed the first round of shale gas exploration right transfer by bidding invitation to lead in a variety of investors who can get exploration right through competition; arranged exploration years and investment through contract. The ministry will urge the bid-winning enterprises to perform the contract by supervising and establishing the exit mechanism at the same time. For those enterprises who fail to complete the commitment of exploration investment, the ministry would require part or total exit from the block from the investors.
The series of policy actions dispel the uncertainty of investors, which will greatly stimulate the input to the development of unconventional oil and gas exploration. The year 2012 is a critical year to implement the “prospecting breakthrough strategic actions” and achieve the geological prospecting’s “358” goal. With the national series of policies to encourage non-conventional energy exploration and development continuously introduced, China’s breakthrough in the oil and gas field will be larger than ever in 2012.
Despite the bleak global economic outlook, the crude oil production is not subject to the interference. Experts said that the investment of global energy companies in the oil and gas exploration and production will continue to increase in 2012. The survey shows global investment in the field will reach USD 595 billion in 2012, an increase of 9.3 percent from 2011, mainly due to the increase in the investment of unconventional shale resources and the deep-water project from the oil and gas companies.
Domestically, the Ministry of Finance issued a notice to adjust the threshold of the special gain levy on domestic crude oil since January 5, 2012, from the original USD40~USD60/barrel and above, to USD55~USD75/barrel and above. Specific collection ratio and progressive rate remain unchanged. The market has already expected the adjustment of the threshold of special gain levy on crude oil. The resource tax reform at the end of the last year has brought obvious tax burden on oil and gas exploration companies. Subject to the background that exploration and development are capital centralized industry, the high tax rate on the relevant enterprises is unfavorable for them.
Secondly, the international crude oil prices level has elevated significantly in recent years. If maintaining the original collection method, it can impact the related business greatly, casting a negative effect to long-term development of enterprises. Therefore, this adjustment can be considered as a natural action and win-win, not weakening the force of the implementation of policies, also providing a more favorable environment for the development of related enterprises.
Following the announcement of discovering “Daqing Oilfield in the Sea” early last year, China’s oil and gas offshore layout has never relaxed. Therefore, the offshore oil and gas development will be one of the highlights of China’s oil industry in 2012.
The nonferrous metal will stabilize production without drastic fluctuations
An outstanding feature in the operation of domestic nonferrous metal industry since 2011 is that: The smelted products have a slowing growth in production, while the minerals and intensively-processed products with a production growth obviously higher than that of the smelted products. From January to October 2011, 10 kinds of nonferrous metal have a total production of 28.49 million tons, with a year-on-year growth of 9.0%, and it is predicted that their production for all year round will exceed 34 million tons, with a year-on-year growth of about 8.8%, which is only higher than that (2.1%) in 2009 (with financial crisis). Therefore, 2011 is a year in which there is a relatively low growth in production of 10 kinds of nonferrous metal in the new century. In particular, the electrolytic aluminum production slows down remarkably, with a year-on-year growth of 8.9% in January to October 2011, and it is predicted that the annual production will have a growth of about 9.0% compared with that of last year.
Meanwhile, the nonferrous metal mines have obviously increased production of raw materials, resulting in an improved resource guarantee capacity. From January to October 2011, the copper and nickel concentrates that China lacks have a year-on-year production growth of 11.1% and 14.3% respectively, thereby alleviating the situation of their tight supply in the market; the lead and zinc concentrates have a year-on-year production growth of 22.74% and 14.9% respectively, resulting in a downward trend in import of lead and zinc raw materials The processed products of nonferrous metal continue a substantial growth in production; and the copper and aluminum products respectively has a year-on-year growth of 19.9% and 24.2% in production from January to October 2011.
It is indicated that China is speeding up adjustment of industrial structure in nonferrous metal industry from extensive development based on production expansion to balanced development of industrial chain.
Another important feature is the rare-earth metal has a rising strategic position and its value as advantageous resource is taking effect.
With the development of modern high and new-tech industries, the rare-earth metal is playing an increasingly important and strategic role in the economic and social development, and has become a “highlight” in the nonferrous metal industry of China. Since 2011, under the condition that there is no obvious improvement in both production and export volume of main rare rare-earth products, the rare-earth metal industry has witnessed a considerable growth in profit and export sales, and it is predicted that the industry will continue to have a good performance this year.
Looking forward to 2012, although the economic environment at home and abroad is still complex, the global demand for main nonferrous metal will continue a proper growth based on the analysis of the current market supply and demand conditions. Under the support of a growing demand, the nonferrous metal will keep a stable production without drastic fluctuations in the world.
With the enhancement of residents’ consumption capacity, the improvement of residents’ consumption expectation, the cultivation and development of consumption hot spots, and the perfection of consumption environment, the domestic market will witness a new growth in its demand for nonferrous metal. Especially, with the development of seven national strategic emerging industries and the implementation of major strategic projects like large aircraft industry, space station project, Chang’e project, and high-speed transport, there will be a higher demand for nonferrous metal materials in the future ten years with the economic and social development, so the nonferrous metal industry will have a broader development space. (By Li Ping)
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