China to replace Japan as world’s second largest economy earlier than expected

Though recent wild currency swings could delay the day of reckoning, many economists expect Japan to cede to China its rank as the world’s second-largest economy sometime next year, as much as five years earlier than previously forecast. The reversal of fortune will bring an end to a global economic order that has prevailed for 40 years, with ramifications across arenas from trade and diplomacy to, potentially, military power. China’s rise could accelerate Japan’s economic decline as it captures Japanese export markets, and as Japan’s crushing national debt increases and its aging population grows less and less productive — producing a downward spiral.

Not long ago, Japan was “the economic miracle”, an ascendant juggernaut on its way to rivaling the US, which has the gest economy. Now, many ask whether Japan is destined to be the next Switzerland: rich and comfortable, but of little global import, largely ignored by the rest of the world.

Japan’s economy shrank at an annualized rate of 11.7 percent in the first three months of the year before recovering to a modest 2.3 percent annual rate of growth in the second quarter. The Chinese economy is likely to expand 8 percent in 2009, while economists expect the Japanese economy to shrink 3 percent for the year before returning to anemic growth of about 1 percent next year.
China has also surpassed Japan in having the gest trade surplus and foreign currency reserves, as well as the highest steel producer. And next year, China could overtake Japan as the largest automobile producer. Per-capita income in China is still less than a tenth that in Japan. But by other measures, the Chinese economy long ago overtook that of Japan. In terms of overall purchasing power, China surpassed Japan in 1992 and will overtake the US before 2020.

How Russia goes about claiming its large share of the ”nuclear pie”

According to estimates from the International Atomic Energy Agency, global reliance on nuclear energy will double by 2030. The nuclear boom has boosted uranium prices by more than 10 times over the past five years Countries with uranium reserves and nuclear technology will hold sway in the global power industry for the next two to four decades.
As President Dmitry Medvedev put it recently, Russia could claim a quarter of the world’s “nuclear pie”. Russia is a member of an elite nuclear club which offers huge future benefits. First, few countries in the world know the secrets of building state-of-the-art and reliable power plants. Second, few countries possess uranium enrichment technology. And finally, the countries producing fuel for nuclear power plants can be counted on the fingers of one hand. Russian companies are ready to provide the entire cycle of production, from uranium mining to nuclear power plant construction. Today, Russia accounts for 40 percent of the world’s uranium enrichment facilities, 17 percent of the international fuel market, 28 percent of the plant building capacity and 8 percent of uranium mining.
So far, Russia’s uranium needs are covered from Soviet-era stockpiles of nuclear weapons, but what will happen next? To be on the safe side, Moscow has decided to secure access to foreign uranium reserves. Russia’s Rosatom Nuclear Energy State Corporation has already signed uranium contracts with South Africa and Australia. Another way is to deepen co-operation with uranium-rich nations in the first place, for example Central Asian republics and Mongolia. Neighboring Kazakhstan has the world’s third largest reserves of uranium, after the US and South Africa. Mongolia is next, occupying fourth place, but its prospective reserves (1.3m tons) could make it one of the world’s largest uranium suppliers.
Today, Russia has joint uranium mining projects with Kazakhstan, Armenia and Namibia. Rosatom is also preparing to initiate production in Mongolia. Fifteen foreign companies have tried to start up uranium production in Mongolia over the past 15 years, but were unable to plough the country’s virgin nuclear soil. Russia’s exploration and production technology now allows for the development of deposits that were earlier deemed unrecoverable.
Those countries that co-operate with Rosatom in uranium production will receive nuclear fuel supply guarantees for the next 60 years. Russia is also ready to offer the unique services of an international uranium enrichment centre in the Siberian city of Angarsk.
 

World short of copper, Chinese demand challenges miners

A copper supply shortage is looming, but top-tier copper resources that could fill the supply gap are not only hard to find, but would take time to turn to account. Independent consultancy GFMS says a copper deficit of 88,000 t is likely, which, it says, is likely to push copper price to USD7,500/t in 2010. GFMS expects higher prices each year, stretching out to 2012.
BHP Billiton base metals marketing director Dave Martin says, “We have a challenge in copper supply and need the industry to develop resources.” Martin calculates that there will be a copper supply gap of 10 million tons in 2020. He arrives at the figure by adding the supply from the current mines, planned expansions, mines under construction and probable greenfield expansions. Some of that gap will be filled by copper scrap, but the question remains about how all of it is going to be filled.
The vehicle-related and general consumer-related copper sales are collectively up there as the gest single driver of demand, and growing in prominence is the use of underground copper cabling that is being used increasingly to distribute electricity, particularly in China. The view of several market analysts is that China will provide the demand in growth over the coming years and that the mining challenge will be the meeting of that demand.
Meanwhile, it is being increasingly reported that the world will remain short of copper in the medium-to-long term. As a result, copper scrap is expected to gain market share, and Chinese demand for imported copper cathode and for imported copper concentrate is expected to grow.
Reports already say that the increase the demand for copper cathode from China is substantial.
The three major drivers of Chinese demand are seen as scrap replacement by cathode; a restocking by China’s State Reserves Bureau (SRB), fabricators and traders; strong domestic Chinese consumer demand; and infrastructure development, driven partly by the Chinese government’s economic stimulus package.
GFMS juxtaposes strong Chinese consumption recovery with slower mine production growth in arriving at the 8,000 t deficit in 2010. The consultancy expects the market deficit to trigger additional investor interest in the metal, which will further boost prices. GFMS expects the magnitude of the copper deficit to grow to 121,000 t in 2011 and 176,000 t in 2012.
Chinese car production increased 23% in the first half of 2009, refrigerator production by 33% and there was also strong “floorspace” growth.
The observations are that China has less scrap and lower mine production, causing the 160% year-on-year increase in the importation of copper cathode. China’s per capita copper growth is rising to 4 kg, and is expected to more than double by 2025.
Power distribution is seen as a major demand driver owing to copper being preferred as underground distribution cable, and replacing overhead aerial transmission cables - which are made mainly from aluminium - in the process. China currently has a 60/40 aerial/underground split, compared to the 25/75 split in France.
Copper usage in the underground electricity distribution sector will increase by 2.5 million tons a year by 2025, if the transition to underground cables in urban areas evolves to a ratio of 40/60 by 2025, and power distribution infrastructure grows by 2.5%, both being reasonably conservative estimates.
There is also considerable scope for car ownership in China to trend towards the ownership levels of developing countries. While in China there are only 16 cars for every 1,000 people, there is the same number for every 344 people in Portugal, 480 in the US, 495 in the UK and 171 in Malaysia.
Increased copper consumption is also expected to result from increased purchases in China of air conditioners. Currently there are 57 air conditioners for every 100 Chinese households, and modest increases in the penetration of these are expected. Other copper-containing consumer articles are also expected to rise to levels closer to the position in developed countries.


China’s appetite for iron ore will widen supply base, reports analyst

China’s ravenous appetite for iron ore will continue for years to come as development spreads across its territory, Goldman Sachs commodity analyst Paul Gray has said.
Commodities markets are sharply focused on Chinese demand for raw materials, as the populous Asian giant’s economy was one of the few to remain in growth throughout the global financial crisis. “We remain positive on the outlook for iron ore prices and certainly volumes,” Gray said.
China’s iron ore inventories were not excessively high. Some analysts have recently been concerned that China’s large iron ore purchases would bloat its stocks and stifle demand in the future. “The development of the interior of China has got a long way to go. I think there are several decades of growth to go there,” Gray said of the country which imported 444 million tons of iron ore in 2008, mostly from Australia, Brazil and India. “There is no doubt China will continue its policy of acquiring overseas assets and that will certainly include iron ore,” he said, adding China was likely to venture into areas perceived as higher risk, such as Africa and parts of Central Asia.
Coking coal, mainly used in steel making, was a potential growth area. Goldman forecast a price of USD155 per ton for 2010 compared with a current spot price of USD170, but said it was likely to go higher. On the outlook for base metals, Goldman said fundamentals would support copper prices, while aluminium markets were over-supplied. Nickel was due a sharp correction as supplies were plentiful and prices were losing touch with fundamentals, Gray said. “Copper is our preferred base metal ... with long duration supply constraints from the mine level. We expect the market to shift from surplus to deficit next year and to remain that way for the next three years,” he said.
He gave a forecast of USD6,600 per ton for 2010 rising to USD8,400 per ton by 2012 or 2013. “By then stocks should be down to very low levels, maybe down to 10 days consumption,” he said.


Chinese consumers loosen purse strings to take the world out of recession

One year after the global economy went into a tailspin, many economists are wondering whether Chinese consumers, once a thrifty lot, will lead the world out of the recession. Last week, the International Monetary Fund said China would do just that, thanks in part to the Government’s USD600-billion stimulus package and a flood of bank lending. The IMF increased its forecast of Chinese growth to 8.5 percent in 2009 while lowering its forecast for the U.S. economy, which it said would shrink 2.7 percent.
In the past, yanking the world economy out of the doldrums has been the job of American consumers, who have accounted for about two-thirds of U.S. gross domestic product and who for years bought enough imports to keep factories running from southern China to northern Mexico to central Europe. But as debt-laden American consumers tighten their belts, some officials hope that Chinese consumers will loosen theirs.
In China, consumer spending accounts for only 36 percent of GDP. The country has the world’s third-largest economy, but it ranks only fifth in consumption, according to a recent McKinsey Quarterly article, which called spending “anemic by almost any measure”. Its savings and investment rates are higher than those of any of the frugal “Asian tiger” countries.
So the Government has been stoking the economy not only with infrastructure projects, but also with incentives for things like new television sets. Mortgages are cheap and plentiful. Morgan Stanley estimated that, using conservative projections, China’s total consumer spending will surpass that of the US by 2018. In the first seven months of the year, vehicles sold in China reached 12.3 million on an annualized basis, exceeding the US for the first time ever, according to Morgan Stanley.
After years of socking away their meager earnings in banks, Chinese consumers are also starting to spend on services, a category where they lag behind U.S. consumers. According to marketing research by Ogilvy & Mather, 70 percent of Chinese children attend at least one extracurricular program, mostly English classes. Ten million are learning to play violin. One million Chinese people a year get cosmetic surgery.
Even though scores of millions of Chinese toil for low wages in factories, Chinese consumers buy 12 percent of the luxury goods sold worldwide, and the number of people able to afford such items is expected to quadruple in two years, to 160 million. Sixty percent of Chinese say luxury goods are a sign of success and social status, according to Ogilvy.

New setbacks for China in bid for resources in Australia

China’s efforts to gain a greater stake in Australia’s resource industry suffered new setbacks when a Chinese miner dropped a USD400-million bid for a controlling stake in an Australian rare earths miner. Earlier, the Australian defense department had rejected a separate Chinese investment in an outback mining venture, saying it threatened national security.
China Nonferrous Metal Mining (Group) Co Ltd terminated its bid for Lynas Corp, owner of the world’s largest undeveloped deposit of rare earths, citing stiff conditions imposed by Australia’s Foreign Investment Review Board. The board had demanded CNMC cut its ownership to below 50 percent and take a clear minority of board seats in Lynas. “We feel disappointed in the government’s position,” Lynas Executive Chairman Nicholas Curtis said after the decision. “I don’t fully understand commercially the difference between 51.6 percent and 49 percent position. You still have significant control of the company.”
The proposed deal the Defense Department refused to support would have seen Chinese magnetite resource investment inside a missile range used as a weapons-testing ground by the military and Australian allies. Defense Minister John Faulkner said the rejection had nothing to do with China, but was purely a security issue.