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China still key market for miners and Africa despite slower growth

JOHANNESBURG ( – There can be no doubt that, for the past two decades-and-a-half or so, the biggest single influence on the global mining industry has been China. Between 2002 and 2012, that country experienced an annual average real gross domestic product (GDP) growth rate of 10.4%, compared with India’s 7.6%, the UK’s 1.3%, Germany’s 1.2%, France’s 1.0% and Japan’s 0.8%. During the period 1992 to 2002, China’s average annual real GDP growth rate had been 9.8% (India’s had been 5.8%). (These figures are from The Economist: Pocket World in Figures 2015.)

The result was the “commodity supercycle” and a global mining boom. But Chinese economic growth has, of course, decelerated significantly since 2012. In 2015, it grew at 6.9% and last year at 6.7%, according to official data released in Beijing. (The International Monetary Fund, or IMF, has estimated India’s 2016 growth rate at 6.6%, which makes China again the world’s fastest- growing economy. The IMF does expect the Indian economy to accelerate once more this year, achieving a growth rate of 7.2%.).

Even so, the World Bank, in its Country Overview for China, describes its annual GDP growth as “still impressive by current global standards”. It highlights that the country’s 9% to 10% annual growth rates over 20 years was “the fastest sustained expansion by a major economy in history – and has lifted more than 800-million people out of poverty. China reached all the Millennium Development Goals (MDGs) by 2015 and made a major contribution to the achievement of the MDGs globally. … China has been the largest contributor to world growth since the global financial crisis of 2008. Yet, China remains a developing country (its per capita income is still a fraction of that in advanced countries) . . . [and] there were 55-million poor in rural areas in 2015.”

Thus, China remains and will remain one of the most important, if not the single most important, actor in the global commodities markets. Which is both good news and bad news for the world’s mining industry.

First, the bad news. In its most recent annual review of the world’s 40 biggest mining companies (in terms of market capitalisation), ‘Mine 2016’, global business services group PwC noted that, during the supercycle, “rampant Chinese demand led to a fierce race to increase capacity at any cost . . . The market climbed higher, reaching dizzying levels . . . Higher prices were expected to be the new norm. China’s demand would continue to strengthen forever and miners were masters of the market.”

So, when Chinese demand slowed down, the effects were pretty dramatic. “[T]he top 40 [miners] had impairments of $53-billion in 2015 and have now written off the equiva- lent of 32% of capex (capital expenditure) spent since 2010 . . . The market capitalisation of the top 40 dropped 37% in 2015, a drop disproportionally greater than that in com- modity prices.” (Commodities prices fell by 25%.)

China supercharged global mining. It is no longer doing so. PwC warned that the world’s mining majors could not rebuild themselves on the basis of dependence on the Chinese market. Nor is there a replacement in sight. “China’s rampant demand for raw commodities seen during the boom will not be replicated. … There are a few notable growth regions, including the ASEAN (Association of South East Asian Nations) and the Indian subcontinent, which will assist with future growth,” affirmed the review. “However, even the most bullish observers would agree that there is no new China on the horizon.”

The decrease in China’s economic growth rate has been purposeful. The country’s government is seeking to transform the national economy from one based on manufacturing to one based on services. The world’s most developed countries, with high per capita GDPs, all have economies dominated by the services sector. The current target is to create what is officially described as a “moderately prosperous society” by 2020.

As the World Bank observed: “Rapid economic ascendance has brought many challenges as well, including high inequality; rapid urbanisation; challenges to environmental sustainability; and external imbalances. China also faces demographic pressures related to an ageing population and the internal migration of labour.”
Now for the good news: PwC pointed out, in 2015 China still, for example, accounted for almost 70% of the world’s iron-ore demand and 40% of global copper demand. “In the medium term, China will continue to be crucial to the prosperity of the mining industry,” it noted. “Representing approximately 40% of global demand, China cannot be ignored.”

Perhaps surprisingly, according to, China’s main imports are mechanical and electrical products and high-tech goods. Crude oil accounts for just 6% of the country’s imports and iron-ore, a mere 2%. This indicates the scale of the Chinese economy. The country’s top ten metals ores and concentrates imports, and their values, for last year are listed by as (1) iron-ore, worth $57.1-billion; (2) copper, $20.6-billion; (3) precious metals, $2.6-billion; (4) bauxite and alumina, $2.5-billion; (5) manganese, $2.1-billion; (6) chromium, $1.6-billion; (7) nickel, $1.5-billion; (8) lead, also $1.5-billion; (9) zinc, $1.3-billion; and (10) tin, $814.6-million. In addition, imports of coal and solid fuels made from coal were worth $11.5-billion, and of lignite, $2.6-billion.

In its ‘Commodity Markets Outlook’ quarterly report published in January, the World Bank observed that “[p]rices for most industrial commodities continued to rise in the fourth quarter from their lows in early 2016 . . . Coal prices soared 38% on strong demand and continued supply tightening in China resulting from government efforts to reduce coal capacity . . . Metals prices increased 10% due to strong demand in China and tightening supply, not- ably for zinc and lead because of the closure of several large mines in Australia, Canada and Ireland . . . Policy efforts by China to boost commodity-intensive infrastructure and construction sectors were a key driver of demand last year. China’s transition to a consumption-led economy, along with industrial reform and environmental concerns, is expected to slow growth in demand for raw materials.” Note: slow the growth of, not reduce, its demand for raw materials.

This has consequences for Africa. In 2014 and 2015, China’s imports from Africa were dominated by crude oil, diamonds, iron-ore, platinum, ferroalloys, refined copper and copper alloys, wood, and chrome ore.

But it must first be noted that the idea that China is invested solely or even predominantly in investing in mining and hydrocarbons projects in Africa is actually erroneous. A September 2015 release by a US think-tank, the Brookings Institution, entitled China’s direct investment in Africa: reality versus myth, pointed out that between 1998 and 2012 some 2 000 Chinese companies had made about 4 000 investments in 49 African countries. “In terms of sectors, these investments are not concentrated in natural resources; services are the most common sector; and there are significant investments in manufacturing as well.” In an August 2016 paper (“China’s Aid and Investment in Africa: A Viable Solution to International Development?”), Fudan University (Shanghai) researcher Yu Zheng reported that large Chinese State- owned enterprises (SOEs) were responsible for only 17% of the country’s foreign direct investment in Africa. And some 33% of the projects involved were in the manufacturing sector. While mining and quarrying were also listed as “major” targets for investment, they were grouped together with construction and the retail trade.

Still, there is significant and continuing Chinese investment in the mining sector in Africa. Zhen Han, a Beijing-based partner in global legal services group Mayer Brown noted that “[t]here is no doubt that mining in Africa has been attractive to Chinese investors . . . [I]n 2013, exploration and/or mining of oil and gas and non-oil and gas minerals attracted approximately 24.7% of China’s total direct investment in Africa in that year . . .” She listed the African countries in which Chinese miners have carried out exploration or made investments as including Algeria, Angola, Cameroon, the Central African Republic, the Democratic Republic of Congo (DRC), Gabon, Ghana, Guinea, Liberia, Mozambique, Namibia, Nigeria, Sierra Leone, South Africa, Sudan, Tanzania, Uganda and Zambia. In addition, there are investments in mining in Africa by Chinese SOEs that are not primarily miners.

And China is now home to a lot of mining giants. No fewer than 12 of PwC’s top 40 mining groups listed in ‘Mine 2016’ are Chinese. They are China Shenhua Energy Corporation (ranked third), China Coal Energy Company (12th), Zijin Mining Group (13th), China Northern Rare Earth High-Tech Company (17th), Shaanxi Coal Industry (21st), Jiangxi Copper Company (26th), Sichuan Tianqi Lithium (31st), Tongling Non Ferrous Metals (33rd), Yanzhou Coal Mining (34th), Zhingjin Lingnan Non-Ferrous Metals (37th), Shandong Gold Mining (38th), and Inner Mongolia Yitai Coal (39th). Most, if not all, of these are SOEs.

There have been a number of significant developments in the past three years regarding Chinese investments in Africa’s mining sector. In November 2014, Zijin Mining bought 51% of DRC company La Compagnie Minière de Musonoie Global, which is the owner of the Kolwezi copper project, in the African country. In April 2015, Shangdong Iron and Steel purchased 75% of the Tonkolili iron-ore mine in Sierra Leone, thereby increasing its stake to 100%. October 2015 saw Jinjiang Mining, a wholly owned subsidiary of Zijin, increased its stake in South Africa’s Nkwe Platinum to 60.47%. And in December of that year, Zijin bought 49.5% of Kamoa Holding, which holds Ivanhoe Mining‘s interest in the Kamoa copper project, in the DRC. Ivanhoe Mines and Zijin each hold an indirect 39.6% interest in the Kamoa-Kakula copper project, while Crystal River Global holds an indirect 0.8% interest and the DRC government a direct 20% interest in the project.

At the end of last year (December 30, to be exact) the Huseb mine, in Namibia, produced its first drum of triuranium octoxide (U3O8). The mine is 90%-owned by Swakop Uranium and 10% by the Namibian State; in turn, Swakop Uranium is owned by the China General Nuclear Power Company. The mine will continue to be optimised during this year and will ramp up its production to 15-million pounds of U3O8 a year. And, in January, the China Molybdenum Company signed an agreement to support the acquisition of 24% of the Tenke copper mine (in the DRC) by Chinese private-equity enterprise BHR. China Molybdenum already holds 56% of Tenke, acquired from Freeport McMoRan.

“Chinese investors in mining in Africa have been increasingly diversified,” observed Zhen. “Large State-owned mining companies have been the major players, but privately owned companies, large and small, have become more and more active.”