LONDON: China, the world’s biggest commodities consumer, ignited a $1 trillion spending spree since 2002 by mining companies worldwide as they rushed to supply its booming industrial demand and real estate construction.

Now, with real estate development slowing, the global industry’s biggest question mark just got bigger.

As thousands of company executives, investors and bankers head next week to South Africa for one of the world’s largest mining conferences, bear markets in iron ore, coal and copper resulting from China’s slowdown will dominate discussions.

“Chinese real estate investment, the single most important commodity demand driver for the past 15 years, is now falling year on year,” said Richard Knights and Ben Davis, analysts at Liberum Capital in London, in a Feb 2 report.

The problems are “real,” they wrote, “and we think under appreciated by the market.”

The annual investing in African Mining Indaba convention is the biggest such gathering on the continent. It will draw executives from companies ranging from London-based Rio Tinto Group, the world’s second biggest miner, and Russia-based United Co Rusal, the biggest aluminium producer.

Some see grim warning signs that China’s slowing economy will continue to hinder demand for products such as iron ore. Others are optimistic that new government policies in China may spur purchases of consumer goods containing aluminium and copper, compensating for shifts away from industrial customers.

Definitive answers to these concerns may affect planning by the mining industry for years to come.

Commodity producers are “still seeing the benefits of a secular upturn” as Chinese consumers move up to “higher levels of consumption,” said Tom Albanese, chief executive officer at Indian-focused mining group Vedanta Resources, in an interview this week.

If, however, China’s policy makers get it wrong, “and you get a hard landing followed by social disruption, history shows that China can look very bad,” he said.

Data released this past weekend reinforced concerns about China’s economy, with a manufacturing gauge showing the first contraction in more than two years. This week, China joined more than dozen other countries in cutting how much cash lenders must set aside as reserves, suggesting a deepening downturn in the world’s second-largest economy.

The effects on commodities have been clear. China, for instance, consumes about 41 per cent of the global output of copper, which is found in everything from car wiring to plumbing.

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, February 8th, 2015

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