Check out the news headlines on any given day and there’s a fair chance you’ll find a story about China.
Headlines just in the past week: 'Iron ore reaches US$150 a tonne on China bets', 'China accepts stranded coal as shortages bite', 'Lithium prices surge on Chinese EV demand'.
So it would be fair to say, then, that China plays a large role in the global mining industry. But why? And how?
David Paull, chairman of Aspire Mining Ltd (ASX:AKM) and board member of five other companies, tells Proactive that China has a wealth of resources beneath its feet, but that its prominence in the mining sector stems back to the mid-2000s.
“China has an enormous endowment of raw materials across the full spectrum,” he said.
“They were exporters of that raw or transformed concentrate matter for a very long time.
“From the mid-2000s they started to realise that their own resources could not meet all of their needs, with internal demand not only for domestic consumption but also to transform products for export.
“And so they became a large importer to meet internal demand.”
China is the world’s leading producer of coal, aluminium, gold, tin, titanium, vanadium and zinc.
It is also the world’s largest exporter, the second-largest importer of goods and services, and is the world’s largest importer of petroleum, iron ore and copper ore.
This mix of massive internal production alongside a globally significant import industry is what makes China the king at the top of the food chain, Paull explains.
Factory of the world
“China has become the factory of the world,” he said.
“Their demand for raw materials and resources quickly outpaced everyone else, particularly in things like iron ore and coking coal.
“China is now the marginal purchaser of most commodities globally.”
China’s rapid economic growth in the early to mid-2000s led to rapid upheaval of the status quo in the resources sector.
“The price-setting mechanisms we grew up with in the 60s through until the 90s went out the window,” Paull said.
“Generally steel commodities like coking coal were set by Japanese steel mills but at the end of the day that went out the window because most of the market was moving to supply China.
“That led to different pricing mechanisms, largely driven by spot markets, and the reason we have spot markets today is because of the impact of broad Chinese demand across many commodities.”
Looking ahead
Markets never remain still, and things are changing. Goldman Sachs (NYSE:GS) has noted that sharp new growth in the customer base for resources is coming from North America, rather than China.
Meanwhile, the exponential growth seen in electric vehicles and devices has led to huge increases in demand for battery metals such as lithium, nickel, copper, cobalt and rare earths.
In 2021, electric vehicle (EV) sales rose 154% in China, and estimates have EV penetration in the country sitting at 40% by 2030.
Paull says with supply deficits forecast for battery metals, China’s EV demand looms large over the global resources sector.
“China has some pretty aggressive forecasts when it comes to EVs but the cupboard is looking pretty bare when it comes to their own resources so they are keen on expanding,” he says.
He points to Chinese cobalt business Huayou, which late last year paid in excess of $500 million for the Arcadia hard rock lithium mine in Zimbabwe.
“And they’ll be looking to secure other assets around the world because it’s crucial to their domestic plans,” he says, pointing out that it won’t just be for battery metals.
Aspire Mining, one of a handful of Mongolian companies that will provide resources to China, will play a large role in the country’s demand for coking coal.
Resilience Mining Mongolia Ltd (ASX:RM1) recently acquired Kincora Copper Ltd (TSX-V:KCC), and Elixir Energy Ltd (ASX:EXR) is building on Mongolia’s first gas discovery.
Paull also expects geopolitical interests — such as the South China Sea — to play a large part in China’s role in the industry moving forward, rather than just commercial interests.
- Daniel Paproth