Boston, MA -- (SBWIRE) -- 02/18/2014 -- 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 5.8% between 2014 and 2018, a sharp slowdown from a growth rate of around 21.6% over the past decade.
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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 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.
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