Global miners and smelters face difficult times after two years of easy growth, as a battle against inflation by Asia's economic powerhouses holds back demand, though Japan's reconstruction after its disastrous earthquake could bring a mild lift.
China, the engine of global growth in demand for industrial metals, is the major concern shared by giants such as BHP Billiton (BHP.AX) BHP.L and Rio Tinto (RIO.AX) (RIO.L), as well as thousands of junior miners.
"Certainly in the first quarter of the year, they haven't been anywhere as aggressive as they have been in previous years," said Michael Overlander, chief executive of broker Sucden Financial, on China's copper imports.
The Asian country is the world's largest commodity consumer and accounts for 40 percent of global copper demand. Its steel industry produces more than the next nine largest countries combined.
But China's efforts to cool inflation, which neared a two-year high at 4.9 percent, have worried the market.
"The general growth may slow somewhat," Overlander said on Tuesday at the Reuters Global Mining and Steel Summit. "But I do feel that this is still going to be the growth story for quite a few years to come."
Chinese Premier Wen Jiabao said on Monday the country must find a balance between generating jobs and its efforts to tame inflation, which have included three interest rate rises and six increases in bank reserve requirements.
"Our task is to strike the right balance between these two and ensure a bright future for the Chinese economy," Wen told a group of foreign company executives at a meeting in Beijing.
Tightening credit in China, combined with weaker steel prices, has driven iron ore down about 15 percent since touching record highs near $200 a tone in mid-February.
Meanwhile, investors have highlighted rising copper stocks in London Metal Exchange warehouses, as well as in China, hinting that the nation's appetite for the metal may have been sated.
China's February imports of refined copper tumbled 35.6 percent to a 27-month low, in part because of high inventories, though holidays also had an effect.
Judy Zhu, an analyst at Standard Chartered, estimated stockpiles of 550,000 tones of metal -- the equivalent of 10 days of global supply -- in Shanghai bonded warehouses alone.
She warned that the high inventories would weigh on demand in the second quarter, but added it would turn around.
"Going into the second half of the year, we expect prices to rise after China runs down its stocks," Zhu said.
Investors have lamented the dearth of buying by China, which dashed hopes by not returning to the market as expected after its New Year holiday in February.
"They are well supplied, but eventually they are going to come, and they will come in the second quarter," said Lars Steffensen, managing partner at Ebullio Capital Management.
"Longer-term, they will make the growth in demand sustainable. The more Chinese raise rates, the better the future looks for China," he said. "I'm quite bullish for China."
BIG IN JAPAN
Analysts are watching to assess any impact from Japan, the world's third-largest economy, where the aftermath of the March 11 earthquake and tsunami threatens to strangle economic activity. Japan accounts for about 5 percent of global copper consumption.
Overall, reconstruction after the quake is expected to have a mildly positive effect on demand for base metals and steel.
Tight global iron ore supplies could get stretched further by massive rebuilding in Japan. This could push iron ore, which is used in steelmaking, back toward record highs.
But equipment shortages will prevent miners from ramping up production, said world No.2 iron ore producer Rio Tinto.
"The impacts of the Japanese earthquake and tsunami have been many and diverse and they affect us," said Rio's iron ore division chief, Sam Walsh. "Suppliers of heavy equipment, such as Hitachi, have been impacted."
He added that large plants, including ones operated by General Motors (GM.N), were running out of Japanese-origin components.
"There is a large reconstruction ahead, the magnitude of which is only just being realized," Walsh said.
Source: www.reuters.com
China, the engine of global growth in demand for industrial metals, is the major concern shared by giants such as BHP Billiton (BHP.AX) BHP.L and Rio Tinto (RIO.AX) (RIO.L), as well as thousands of junior miners.
"Certainly in the first quarter of the year, they haven't been anywhere as aggressive as they have been in previous years," said Michael Overlander, chief executive of broker Sucden Financial, on China's copper imports.
The Asian country is the world's largest commodity consumer and accounts for 40 percent of global copper demand. Its steel industry produces more than the next nine largest countries combined.
But China's efforts to cool inflation, which neared a two-year high at 4.9 percent, have worried the market.
"The general growth may slow somewhat," Overlander said on Tuesday at the Reuters Global Mining and Steel Summit. "But I do feel that this is still going to be the growth story for quite a few years to come."
Chinese Premier Wen Jiabao said on Monday the country must find a balance between generating jobs and its efforts to tame inflation, which have included three interest rate rises and six increases in bank reserve requirements.
"Our task is to strike the right balance between these two and ensure a bright future for the Chinese economy," Wen told a group of foreign company executives at a meeting in Beijing.
Tightening credit in China, combined with weaker steel prices, has driven iron ore down about 15 percent since touching record highs near $200 a tone in mid-February.
Meanwhile, investors have highlighted rising copper stocks in London Metal Exchange warehouses, as well as in China, hinting that the nation's appetite for the metal may have been sated.
China's February imports of refined copper tumbled 35.6 percent to a 27-month low, in part because of high inventories, though holidays also had an effect.
Judy Zhu, an analyst at Standard Chartered, estimated stockpiles of 550,000 tones of metal -- the equivalent of 10 days of global supply -- in Shanghai bonded warehouses alone.
She warned that the high inventories would weigh on demand in the second quarter, but added it would turn around.
"Going into the second half of the year, we expect prices to rise after China runs down its stocks," Zhu said.
Investors have lamented the dearth of buying by China, which dashed hopes by not returning to the market as expected after its New Year holiday in February.
"They are well supplied, but eventually they are going to come, and they will come in the second quarter," said Lars Steffensen, managing partner at Ebullio Capital Management.
"Longer-term, they will make the growth in demand sustainable. The more Chinese raise rates, the better the future looks for China," he said. "I'm quite bullish for China."
BIG IN JAPAN
Analysts are watching to assess any impact from Japan, the world's third-largest economy, where the aftermath of the March 11 earthquake and tsunami threatens to strangle economic activity. Japan accounts for about 5 percent of global copper consumption.
Overall, reconstruction after the quake is expected to have a mildly positive effect on demand for base metals and steel.
Tight global iron ore supplies could get stretched further by massive rebuilding in Japan. This could push iron ore, which is used in steelmaking, back toward record highs.
But equipment shortages will prevent miners from ramping up production, said world No.2 iron ore producer Rio Tinto.
"The impacts of the Japanese earthquake and tsunami have been many and diverse and they affect us," said Rio's iron ore division chief, Sam Walsh. "Suppliers of heavy equipment, such as Hitachi, have been impacted."
He added that large plants, including ones operated by General Motors (GM.N), were running out of Japanese-origin components.
"There is a large reconstruction ahead, the magnitude of which is only just being realized," Walsh said.
Source: www.reuters.com
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