Fast Market Research recommends "China Mining Report Q1 2014" from Business Monitor International, now available
Boston, MA -- (SBWIRE) -- 12/06/2013 -- The cooling of China's feverish growth is threatening to turn a decade-long mining boom into bust for many domestic miners. With cost containment being key in the face of falling commodity prices, Chinese miners will be forced to recalibrate their investment approach over the coming quarters. While state-owned mines are generally more insulated from the weakness in commodities prices, the Chinese government's gradual embrace of free market economics should pave the way for some much needed consolidation and restructuring in the mining industry.
The transitioning of China's economic growth model from fixed-asset investment to private consumption will create ripple effects across the resource extractive industry. With mineral prices on course to trend lower over the coming quarters, the cooling of China's feverish growth is threatening to turn a decade-long mining boom into bust for many domestic miners. We forecast the country's mining industry to grow at an annual average rate of 5.6% between 2013 and 2017, a sharp slowdown from a growth rate of 17.7% over the previous five years.
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As 2014 ushers in the fourth year of China's 12th Five-Year Plan (2011-2015), we expect the changes and reforms enacted in 2013 to continue. In a bid to curb overcapacity and reduce environmental pollution, the government plans to close smaller and less efficient mines, while mid-sized mines will be merged and production consolidated into giant, vertically integrated state-owned outfits. The small production losses that will inevitably occur with the closure of smaller mines will give way to production gains down the road due to the efficiency gains of bigger, more integrated mining companies.
We expect increasing tax burdens on the Chinese mining industry over the coming years. As evidenced by recent policy measures, China is becoming increasingly concerned about the problem of environmental pollution, especially from the coal sector. Domestic miners are set to come under greater pressure from the string of taxes and environmental regulations introduced by the government over the past quarters. Crucially, Beijing's reform-minded new leaders are considering a heavier dose of deep structural reforms to tackle the problems of overcapacity in the heavy industry. While easy financing and cheap energy supplies have previously helped to shore up operations at many loss-making steel mills, the decades of blind expansion and unsustainable practices in the steel sector are fast approaching an end. There is a growing realisation amongst the Chinese new leaders that free market economics should play a role in ending the capacity glut in many industries.
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