Resource World Magazine

www.resourceworld.com 25 F E B R U A R Y / M A R C H 2 0 1 4 (4) (3) (2) (1) 0 1 2 3 4 5 ($500) ($400) ($300) ($200) ($100) $0 $100 $200 $300 $400 $500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 % Billion Real GDP Growth in Billion US$ Real GDP Growth, % Figure 1: USA – Rate of Real GDP Growth v.s. Real GDP Growth in Billion US$ from 2000 to 2013 Source: IMF, Century Iron Mines To further understand the importance of quantum demand, we should also look at its sheer cumulative size; this is what sus- tains the day-to-day production of every mine in the world. At its peak growth rate in 2007, China consumed about 700 million tonnes of iron ore p.a. But in 2012, when its growth rate had fallen by half, it con - sumed over 1.1 billion tonnes p.a. To the resource world, it is this 1.1 billion tonnes a year that matters; whether the growth rate is 14% or 7.7% is secondary at best, or even irrelevant. It is therefore more revealing to understand that the resource world is now dealing with real demand for 1.1 billion tonnes a year of iron ore. And this absolute number keeps growing as a result of the massive size of the Chinese economy, the world's economic engine. Fast and slow are relative terms. The absolute quantum is, in the final analysis, the indispensable measurement tool that matters. PROFILING CHINA'S ECONOMIC GROWTH For the resource sector, the best part of China's economic growth story is its heavy weighting in fixed asset invest - ment, which generates huge demand, on a historic global scale, for the base metal and bulk mineral markets. According to a report published by Woods MacKenzie, in October of last year, by 2017 China will be consuming more than half of the world's supply of base metals, while the remaining 200 countries will make up the remaining 48% of the market (down from 54% cur - rently). On the bulk side, China already buys about 70% of global seaborne iron ore. Given the success and effectiveness of these established policies of investment- led economic development, and their sustainability at the current rate and level of growth, the Chinese government is not expected to change course for many years to come – at least until urbanization (or in some cities, re-urbanization) reaches about 70-80% of its population. This means urbanizing some 300 million people, and only then shifting the balance to consum - erism. This does not mean the price of commodities will continue to rise (with the occasional correction), but demand has certainly not stopped, and will continue to rise. The world can count on this good news of growing demand for development of resources, which China needs and lacks. SOME REALITY CHECKS ON CHINA'S REAL GDP GROWTH China is the second-largest economy in the world, a position Japan achieved and maintained for several years. Having over- taken Japan in that position in 2010, the IMF forecasts that China will have reached a GDP of nearly US $9 trillion in 2013, which is about 80% larger than Japan's. Though GDP is a pretty good measure of the size and strength of an economy, it would be useful to our understanding of this global engine of economic growth to look at other economic and financial parameters as reality checks. Also in 2010, China became the world's largest manufacturer, overtaking the US, which had maintained its supremacy for 110 years. In heavy industries such as the auto market, the growth in China has been just as spectacular. It surpassed Japan in 2006 as the second-largest auto market in the world and the US in 2010 as the world's largest. Yet the gap in auto own - ership per capita between China and the US remains huge. According to the World Bank, in the year in which China overtook the US as the largest auto market, China's auto ownership per 1,000 people was only 58, while the US was at 797. The potential for the expansion of this market in China 0 2 4 6 8 10 12 14 16 $0 $100 $200 $300 $400 $500 $600 $700 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 % Billion Real GDP Growth in Billion US$ Real GDP Growth, % Figure 2: China – Rate of Real GDP Growth v.s. Real GDP Growth in Billion US$ from 2000 to 2013 Source: IMF, Century Iron Mines

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