China Metals Report Q1 2015 - New Market Report

From: Fast Market Research, Inc.
Published: Thu Nov 27 2014

China's metals industry is set to face more pain ahead in the face of cooling Chinese economic growth and Beijing pledge to induce more supply discipline in heavy industry.

We expect China's metals industry to come under pressure from cooling Chinese economic growth over the coming years. More domestic smelters will struggle to survive in the face of falling profit margins, sluggish demand and waning support from the local governments. The rebalancing of China's economy away from fixed asset investment and towards private consumption will significantly drag on demand growth for construction-related materials. Industrial metals such as steel and nickel will be particularly affected given their heavy exposure to the construction sector.

We forecast Chinese real GDP growth to average 6.3% between 2014 and 2018, compared with an impressive average growth rate of 10.1% per annum over the past decade. In our view, attempts by the Chinese government to arrest the structural slowdown in the country's economy will only cushion the impact of an economic slowdown, rather than revive a growth upturn.

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We believe the Chinese government's plans to consolidate the metals industry will continue to gain traction in the coming quarters. For instance, Chinese policy makers plan to eliminate 28.7mn tonnes (mnt) of steel-making capacity and 0.5mnt of copper smelting capacity in 2014 (see chart below). Consolidation of the industry will be further driven by the slump in profit margins, tightening of credit lending and stricter regulations aimed at curbing environmental pollution in heavy industry. As a result, state-owned companies, which already enjoyed a dominant role in the mining and metals industry, will emerge more prominent over the coming years.


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