There is no question that in today’s global economy, China’s behavior affects the rest of the world. This is especially true for mining companies whose business depends on China’s demand for commodities.
So what happens with China’s rate of economic growth slows down?
Both commodity prices and corporate investment decisions are directly affected. According to the Economist Intelligence Unit, real annual GDP growth in China is forecast to fall to an average of 8.1% between 2013 and 2016. This uncertainty of demand is made more difficult by the widening gap between China’s official data and reality. This is directly impacting the mining companies because it is becoming more difficult to make hard line decisions about the future.
Carl Hughes, Global Head – Energy & Resources is quoted saying “Projects all over the world are feeling the heat associated with rising operational and capital costs at a time when the economics of mine projects are starting to look less attractive as commodity prices head south. This is forcing miners to put a much greater focus on project returns rather than production volumes. Projects need to earn their keep and only the highest quality projects will get the green light.”
The good news is that China’s commitment to a five year plan focusing on seven strategic industries will mean upwards of $1.6B by 2015. This initiative coupled with the ongoing urbanization and industrialization around the world serve as a catalyst for the demand of commodities.
