Inflection Point of Development of Mining Industry in China is Approaching

The global economic recovery is slow the first half of this year. The demand of energy suffered the most from the increasingly instability and uncertainty, and the external dependence of mining products in China continued to rise. At the same time, production of the main mining products still grew while the pace has slowed down. In brief, the development of mining industry in China was still at the stage of “mass and haste production”.

Experts believe that the inflection point of development of mining industry in China is approaching regarding the 10-year rule of mining boom period, especially with the influence of the current global economic downturn. However, opportunities could still be seen under the risks.

The world economic situation was rather complex the first half of the year. The United States was still unable to get rid of the economy depression, Europe was deeply sinking in the sovereign debt crisis, and emerging economies began to suffer increasingly inflation pressure and a slow-down of economic development with risk of "double dip" emerged. World organizations like the United Nations, the World Bank,and Organization for Economic Co-operation and Development (OECD) lowered the expectation of future growth, and were commonly pessimistic on the development of the world economy.

With the influence of world economy downturn, the global mining industry presented a downward trend. Since Q4 of 2011, demand of main mining products began to fall, financing faced difficulty, and cost rose ceaselessly. Prices of iron, copper, aluminum, lead, zinc, nickel and others began to fall. It could say that global mining is entering into a downlink period in the short-term period.

Although some resources industry get near the bottom low with the impact of international financial crisis and China's economic structural adjustment the first half of the year, strong potential of the whole world especially the emerging economies bring the rigid demand of resources and energy which increase the possibility of sustainable prosperity of mining industry.Take the BRICKS as an example, the industrialization, urbanization and agricultural modernization in these countries are irreversible,thus rigid demand of resources and energy will be inevitably increase, and the global mining industry will continue to thrive.

However, regarding the present situation in China, the overcapacity in mining industry is commonly exists. According to the China Mining Federation, the first half of the year, investment in fixed assets in China's coal industry amounted to RMB 210 billion, 5% higher than the national investment in fixed assets, and the investment in iron and steel industry is 8%higher and non-ferrous metals industry 31%higher.

The first half of the year, fixed assets investment which affects resource demand in China has slowed down, the market demand continued to be weak, while supply still grew. Ac-cording to statistics, the first half of the year,the newly increased coal reserves has reached more than 6 tons, iron ore has reached to 18 tons. At the same time, development of important chemical mineral such as phosphorus, sulfur and potassium kept steady with resource reserves increased, output grew significantly,and prices stable with a little rise. Investment in chemical mining industry remained smooth and kept profit.

Affected by the global economic downturn,output of China's main mining products maintained growth while the pace has slowed down.Production of the raw materials related to the infrastructure construction, such as iron ore,crude steel, 10 kinds of non-ferrous metal and cement have slowed compared to the previous year.

Regarding the whole mining industry, the first half of the year, China's external dependence on foreign crude oil rose to 59.5%, approaching the “red line” experts warned. At the same time, with the drive of domestic rigid demand of natural gas and the construction of second line of West-East natural gas transmission project, imports of natural gas continued to grow rapidly. Supply and demand of Phosphate rock keeps balance, while external dependence of sulfur on the outside world reached to more than 50%, and potassium fertilizer could not meet the domestic demand either.

The first half of the year, prices of mining products in China fluctuated in a high level and showed a downlink trend. Prices of crude oil,iron ore, copper and gold declined accordingly,thus the cost of economic development increased.

According to the China Mining Federation, the mining boom period is about 10 years in history. It is just the 10th year counting from 2003, but this is just a “small turning” as the industry marching forward.

Some resource industries entered the troughs due to the international financial crisis and China’s structural adjustment. Although emerging economies were affected by the crisis and slowed the pace of economic development, the overall strategy for development is unchanged.At the same time, China’s mining industry showed some new trend the first half of the year which many experts believe is the sign of“inflection point” of mining industry. They are certain that regarding China’s huge demand of commodity, the prices of commodity would be on the rising track on the long run, thus the development of mining industry would be stabilized and turns better again.

Wang jiahua, executive vice president of China Mining Association says it is certain that the international economic situation has severe impact on the development of mining industry in China, but the key is to look at the time the crisis will last and if we can find a feasible way to resolve it.

At present, temporarily slowdown in mining industry provides the best opportunity for China’s mining industry to re-examination and readjustment. Severe problems of positioning of the industry, duplication and disorder of industry structure, unlimited expansion of production have hindered the development of the industry.As the industry enters into a tough period, we should seize the opportunity and solve the contradiction in the industry to realize a Nirvana reborn. In particular, mining enterprises should accumulate more experience and strategy for coping with crisis after undergone the financial crisis.

In fact, with China's energy resources problems get clearer, the problems of growth pattern is more obvious. At present, mining industry has the problem of overcapacity but cannot be used reasonable, and it is the best time to adjust industrial structure. What’s more, it is the cannotmissing time to promote energy-saving emission reduction as prices and profits of mining products fell down.

Liu Shuchen, director of resource analysis office of information center of the Ministry of Land and Resources says that, the mining industry was shocked by the global economic downturn. While in the process of international mining operation, difficulties of capital financing, policy resource nationalism, high cost and increasingly demand of talent, especially the changes in capital market could provide a good opportunity for China’s mining industry to “go out”.

As strategic position of competitive mining products such as rare earth rises, international disputes over relevant mining products increased dramatically. This requires resources management administrations to improve response capability, enhance pertinence, effectiveness, compliance of the competitive mining resources management policy, strengthen the research of international rules and practices;plan the exploration, mining, smelting, pricing,trade and other aspects of competitive mining products as a whole and ensure the coordination and consistency of policies accomplishment; accelerate the construction of competitive mining reserve system, especially the mobilization and use of initiative of different aspects; establish a reserve system including central government’s strategic reserves, local governments’ economic reserves as well as mining enterprises’ commercial reserves; pay close attention to the situation that storage of iron ore and coal keeps increasing while large amount of imports from other countries do not reduce.