2008 February 04 Monday
China Expected To Use Half Of World Minerals Soon

While Europe's elites try to convince America's elites to reduce fossil fuels usage to prevent global warming and while American elites argue about how best to waste massive sums of money in a pointless war in Iraq at the same time the Chinese are on course to make the Americans and Europeans steadily less important in the world. While we distract ourselves with foolishness the Chinese are busy creating an industrial civilization and burning through coal, minerals, and other natural resources at a rate that makes Western usage pale in comparison. In many categories the Chinese are soon going to use more than half the world's output.

The rapid industrialisation of China’s economy means that it is likely to consume a majority of the world’s supply of all the major metals and minerals, potentially leading to clashes with other countries over access to resources. Rio Tinto, the world’s second-largest miner, said last week that China already accounted for 47 per cent of all iron ore consumption, 32 per cent of aluminium and 25 per cent of copper.

Tom Albanese, Rio’s chief executive, has predicted that within the next couple of years this will move to 58 per cent of all iron ore, 45 per cent of aluminium and a third of all copper. He said: “Even with the assumption that the current growth intensity will slow, we are looking at China consuming a higher percentage of global supply.”

The only raw material the United States uses more of than China is oil.

The Chinese are doing deals to ensure their access to raw materials.

Back in the UK, Anglo American, which has its own iron ore businesses, announced a surprise strategic partnership with China Development Bank, the state-owned finance house headed by Chen Yuan which is bankrolling Chinalco's stake-building in Rio Tinto. Anglo and the bank will develop a range of mining projects together, primarily in Africa, where the Chinese have had significant success in convincing governments to favour Chinese companies over Western rivals. The Chinese have invested heavily in countries such as Angola, throwing in free infrastructure on top of very favourable terms to secure their energy supplies.

But sources close to the Anglo-China Development Bank tie-up say the Chinese have had considerable production difficulties and that the link-up with Anglo will give them access to the company's mining and logistics expertise.

Major mineral extraction companies are feeling the effects of Chinese business clout. The Chinese are busy pursuing access to minerals around the world.

BHP Billiton, the world's largest mining company, has rebuffed an approach from Chinalco to discuss the Chinese company's acquisition of a 12 per cent stake in Rio Tinto.

The state-owned aluminium producer is understood to have written to Don Argus, the BHP chairman, “hoping to open a dialogue” after blocking BHP's £65billion bid for Rio.

BHP received the faxed letter on Friday, as Chinalco's £7.1 billion share raid was being announced. The Chinese are not thought to have received a reply.

When Chinese resource companies buy stakes in international resource companies the Chinese government becomes the real owner.

What does Chinalco want? BHP will hope it is merely motivated by industrial logic as an aluminum producer. Were Chinalco thinking only along those lines, it might encourage a Rio Tinto-BHP tie-up. Its shareholding could then be a front-row seat at the talks, with which it might buy cast-off assets, and catapult itself into the global mining mega-league.

But such thinking looks naive. Chinalco is a state-owned firm being bankrolled by a state-owned lender in the most ambitious country in the world. From a political perspective, a BHP-Rio Tinto deal is highly undesirable. China's steelmakers worry BHP and Rio Tinto would use their combined 35% market share to crank up iron-ore prices. That might fuel the inflationary pressures that worry Chinese politicians, too. A politically motivated interloper might prefer to block BHP's bid, or launch its own.

America is wasting precious time, energy, money, and lives in the Middle East. The war in Iraq is a very bad investment. While the Chinese concentrate on business we have dissipated our energies on war, financial shell games, and feeding of an unsustainable welfare state. We need to wake up and snap back to reality.

Share |      By Randall Parker at 2008 February 04 08:10 PM  China


Comments
Stephen said at February 4, 2008 8:35 PM:

The world needs another superpower because the current one's monopoly has caused it to become lazy and stupid.

Competition is (mostly) good.

Kenelm Digby said at February 5, 2008 3:50 AM:

So why do people still insist in saying that China has only '1/10 or 1/20th the GDP per head of the USA' or whatever low figure they say, when this position must be patently absurd when we consider the actual brute evidence of Chinese economic clout?

Ned said at February 5, 2008 6:20 AM:

Your analysis is correct. While the US government is engaged in pointless wars in the Middle East that squander our resources and seem to serve only to make everyone hate us, the Chinese are quietly building a powerhouse. An article in the WSJ last year said that Chinese influence was "exploding" in resource-rich Sub-Saharan Africa. The Chinese are clearly in for the long haul, and their strategy seems to be working so far. When it comes to dealing with foreign powers, the Chinese don't give a fig whether it's a Jeffersonian democracy or a corrupt dictatorship - they're all the same to Beijing. It would be nice to hear some of this discussed in the current US presidential campaign rather than the vapid slogans and idiotic commentary that usually passes for debate. Anyway, it's not all a bed of roses for the Chinese - there are at least two long-term problems that worry Beijing. In foreign policy, they are worried about encirclement - just look at a map - China is surrounded by real and potential enemies. One of them, India, has nuclear weapons and a population almost matching China's. Access to resources, especially oil, is also a concern. China imports most of her oil by sea from the Persian Gulf, and the US could turn off the spigot with a carrier battle group or two in the Indian Ocean. In the future, the Indian or Japanese navies might be able to do it too. China, of course, is aware of this potential threat and so pursues a very conservative foreign policy. The other thing that worries the Chinese leadership is regionalism and the growth of regional warlords. This is currently a big problem - the coastal cities such as Shanghai are booming, while some of the worst poverty I have ever seen persists in the central rural areas. Some past Chinese governments have been weak and dominated by provincial warlords, who usually fought with each other, allowing foreigners to move in and dominate the country. This is what happened in the 19th century. And a big chunk of the 20th century was concerned with the civil war between the Chaing Kai Shek and Mao Tse Tung factions, which allowed a brutal Japanese invasion to occur. Also, populations on the fringes of the empire, such as the Tibetans and the Moslem Uighurs, bitterly resent Beijing's rule and would probably revolt in a minute if they could get away with it.

Kenelm Digby said at February 6, 2008 4:57 AM:

Just a little quick 'n' dirty analysis.
If China uses half the World's iron, the it is reasonable to assume that half the World's industrial activity is Chinese. I know some here will scoff at my 'ignorance' and cite all sorts of things ranging from 'productivity' to the prevalence of automobiles and McDonald's restaurants.
If China has half the World's industry, ergo, the USA has less than half and has a smaller economy than China.

Randall Parker said at February 6, 2008 4:46 PM:

Kenelm,

The market cap of steel companies is pretty low compared to the market cap of computer software and internet companies.

I read several years ago that the cost of steel in a car was lower the cost of the computers in it. Not sure if that is still the case.

Stephen said at February 6, 2008 5:12 PM:

China is also the worlds largest steel exporter, so its not possible to draw any conclusion about Chinese industrial activity based on iron imports alone. By contrast, the US is a small steel exporter (the US industry is quite uncompetitive) but a large importer (even after applying the industry 'protecting' import tariffs).

By contrast, the Chinese government has imposed a steel export tariff in order to slow down exports and make more steel available for domestic construction (when was the last time a western country imposed a tariff on *exports*??). China is also closing old (ie expensive and dirty) steel mills every month as new ones come online around the country.

It must be an amazing time in China - everything is on a massive scale.

Randall Parker said at February 6, 2008 5:42 PM:

Stephen,

There's a general trend now to restrict exports of commodities and certain things made from commodities. Russia has recently limited crop exports. China is also limiting coal exports and a mineral. Indium maybe? South Africa is restricting coal exports and cutting back on sales of electricity to neighboring countries. Other countries are limiting crop or energy exports. I recall mentioning this trend in a post a few weeks ago.

Stephen said at February 6, 2008 8:22 PM:

Randall, that's odd as I don't believe there's any world shortage of coal or iron ore etc - if I were running a country I'd be mining it as fast as I could while demand is high.

My guess re South Africa is that the underlying reason they're reducing coal exports is that their infrastructure is crumbling. Similar re electricity - I gather that there are now regular day long blackouts throughout South Africa caused by a decline in infrastructure and generating capacity. I had hoped that SA would avoid going the way of the rest of Africa, but now I'm a pessimist.

Kenelm Digby said at February 7, 2008 3:59 AM:

Randall,
My point is really about iron and steel usage being a proxy for industrial and commercial activity of all kinds.
If anyone cared to do the analysis, i would wager that steel reinforcing bars for concrete is perhaps the biggest single Chinese usage of iron - hence the statistic really is a back-handed way of estimating how many apartment blocks, office blocks, highways, airports etc are completed each year.

Kenelm Digby said at February 7, 2008 4:04 AM:

I remember from years back in High School chemistry learning that iron is one of the most abundant minerals in the Earth's crust, so I take claims of an 'iron ore shortage' sceptically.
Aluminum on the other hand is a different matter - very abundant, but damned difficult to extract profitably.


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