## _wp1186 - 1.3 M.

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---

### Overview
- Chinese imports of selected mining commodities rose sharply: iron ore, copper ore, chrome ore, alumina, and manganese ore showed large increases in import volumes over the period covered.
- The chapter assesses iron ore, copper ore, and alumina by examining world output and demand over the past two decades and China’s dependence on foreign supply.
- Source data cited include China Statistical Yearbook 2009 and Ma, Jianming (2010).

### Iron Ore
- China’s total demand for iron ore rose 5.3 times from 164 M. tons in 1998 to 861 M. tons in 2008.
- Domestic output increased 3.3 times from 112 M. tons to 366 M. tons between 1998 and 2008.
- Imports of iron ore rose 8.5 times from 52 M. tons to 444 M. tons over the same period.
- China’s iron ore dependence on imports:
  - 31.6 percent in 1998
  - 54.8 percent in 2008
  - 72.9 percent in 2009
- Exceptional 2009 import dependence attributed to:
  - (a) China’s fiscal stimulus package with heavy investments in real estate and infrastructure after the crisis;
  - (b) compression in demand in 2008 due to high ore prices and a subsequent sharp increase in 2009 following a drop in prices;
  - (c) cuts in domestic iron ore production because profits were adversely affected by the 2008 price decline.
- China’s share in world iron demand rose from 40.2 percent in 2006 to 54.3 percent in 2009.
- Steel production context:
  - In 2005 China produced nearly one-third of the world’s steel.
  - By 2008 China’s share of total world steel production rose to 47.4 percent (Jianmin MA, 2010).
  - Steel production in China nearly doubled during the 1990s and tripled during the 2000s, rising at an average annual rate of over 22 percent.

### Copper Ore
- China’s copper mining output (ktons): 2.9 (1950), 87.4 (1960), 145.8 (1970), 221.3 (1980), 295.9 (1990), 593.0 (2000), 928.0 (2007).
- Refined copper output (ktons): 10.5 (1950), 100.3 (1960), 165.3 (1970), 383.6 (1980), 558.7 (1990), 1371.0 (2000), 3499.4 (2007).
- Annual mining output growth rates: 6.6 percent (long-term average noted).
- Annual refined output growth rate averaged 14.3 percent since 1990.
- China’s total copper demand rose from 0.7 M. tons in 1990 to 6.6 M. tons in 2007; annual average growth since 1990 close to 14 percent.
- Smelting growth outpaced mining: smelting annual average growth 14.3 percent vs. mining output 6.6 percent, reflecting increased reliance on copper ore imports processed domestically.
- 2007 net import volumes of copper-related products:
  - 4.5 M. tons of copper ore
  - 0.2 M. tons of crude copper
  - 1.4 M. tons of refined copper
  - 0.6 M. tons of copper products
  - 5.6 M. tons of scrap copper
- The copper trade deficit in 2007 was equivalent to US$30.1 billion.
- Degree of self-sufficiency in copper decreased from 40.6 percent in 1990 to 14 percent in 2007.
- Around two thirds of copper ore used in China are imported.

### Alumina and Aluminum Ore
- 2008 refined aluminum consumption in China was close to 14 M. tons, out of world consumption of 38 M. tons.
- Annual growth rate of China’s refined aluminum consumption averaged close to 17 percent over the past decade.
- Refined aluminum output doubled from 6 M. tons in 2003 to 13.2 M. tons in 2008.
- China’s bauxite output in 2008 reached 25.2 M. tons, corresponding to an annual average growth rate of 20 percent over the past decade (Mei Zhang, 2010).
- By 2008 bauxite production (25.2 M. tons) was almost identical to aluminum ore import at 25.7 M. tons.
- China’s alumina dependency on imports:
  - 32 percent in 1998
  - 48 percent in 2003
  - 17 percent in 2008
- Approximately 40 percent of Chinese aluminum output relies on raw materials from outside China (Jianming Ma, 2009).
- China’s total demand for alumina share of world total rose to around 28 percent in 2005 (available data).
- Imports of alumina grew rapidly prior to 2005, then declined while domestic alumina output grew rapidly from 2005 to 2008.
- Alumina and aluminum ore prices peaked in the years with largest import volumes in 2006 and 2008 respectively.

### Major Mining Commodities Prices and Linkage with China’s Demand
- Major mining commodity prices rose sharply since 2003.
- Late 1990s low commodity prices led to low investment and closure of some mines; strong global demand since then, including from China, drove inventories to low levels and created capacity constraints that pushed prices up.
- China is a large net importer of copper ore, iron ore, and nickel — commodities which registered the largest price increases.
- China has been a net exporter of aluminum since 2002, which may explain why aluminum prices rose by only a fraction compared with most other commodity prices.
- China accounted for two-thirds of world demand growth between 1999 and 2005.
- During that period China’s demand for major metals grew at an average rate of 14.7 percent a year.
- China produces and consumes nearly one third of most major metals, except for nickel and copper.
- Steel trade shifts:
  - China historically a net importer of steel; became a net exporter in 2006 and ranked first in the world as net exporter in 2008; in 2009 it became a net importer again due to strong domestic demand and reduced exports after the financial crisis.

### Key Drivers of Strong Demand for Minerals and Metals in China
- GDP composition and consumption:
  - Consumption has accounted for less than 50 percent of GDP in recent years in China, compared with a world average of close to 80 percent.
  - Private household consumption in China is 34 percent of GDP.
  - Middle-income countries average 60 percent of GDP from private household consumption; low- and middle-income countries average 41 percent.
- Implication: Structural evolution of China’s GDP composition (low consumption share, high investment share) has been a major driver of strong demand for major mining commodities and upward pressure on their prices.
- Urbanization and industrialization:
  - Urbanization rate rose from less than 18 percent in 1978 to close to 47 percent in 2009.
  - This implies about 14 million people move from rural areas to urban areas each year.
  - From 1978 to 2008, China’s GDP increased 17 times; industrial production increased 25 times in volume and 27 times in value.
- Sectoral metal usage (2003 representative):
  - Steel consumption by end use (percent): Infrastructure 9; Machinery 25; Transport 10; Business construction 18; Residential construction 28; Other 10. Infrastructure and construction together accounted for 55 percent of steel consumption.
  - Aluminum consumption by end use (percent): Construction 36; Power 16; Package 10; Consumer goods 10; Manufacturing 8; Transport 9; Other 11. Construction accounted for about one third of aluminum demand.
- Investment in fixed assets:
  - Total investment in fixed assets increased 180 times in nominal terms from 1981 to 2008, while GDP increased 61 times over the same period.
  - Structure of fixed asset investment (2008 shares): Manufacturing 33 percent; Real estate 23 percent; Transportation and storage 10 percent.
  - Investment in residential buildings experienced long-term accelerating growth, especially since 2003.
  - From 2000 to 2008, the length of highways rose 2.7 times.

### Share to GDP: Consumption, Investment, and Net Exports (2000–2009)
- Consumption share fell from 62.3 percent in 2000 to 48.6 percent in 2009.
- Share of investment in GDP (capital formation rate) rose from 35.3 percent to 47.5 percent between 2000 and 2009.
- Share of net exports increased from 2.4 percent to 3.3 percent (after having peaked at 8.8 percent in 2007).
- In 2009, the share of consumption in China was only slightly higher than that of gross capital formation, with both close to 48 percent of GDP.
- Changes in levels from 2000 to 2007:
  - Final consumption increased 1.1 times.
  - Capital formation rose 2.2 times.
  - Net exports rose 8.8 times.
- From 2000 to 2009:
  - The share of consumption in GDP declined by 13½ percentage points of GDP.
  - The share of investment rose by over 12 percentage points of GDP, particularly since 2004.
  - Net exports also increased significantly since 2004.
- A sharp increase in investment occurred in 2009, following the large stimulus package after the global crisis.

### Changes in Composition of Growth, Investment Trends, and Prospects
- Investment trends and scale:
  - Investment rose from RMB 96.1 billion in 1981 to RMB 17,282.8 billion in 2008; GDP rose from RMB 489.2 billion to RMB 30,067 billion over the same period.
  - 2008 shares of fixed asset investment: Mining 4.5; Manufacturing 32.8; Production and Supply of Electricity, Gas and Water 6.4; Transport, Storage and Post 9.8; Real Estate 23.4; Management of water conservatory, environmental and public facilities 7.8; Others 15.3.
- Investment versus net exports in demand for mining commodities:
  - In 2008, estimated relative share of net exports in total demand for major commodities: 7.7 percent.
  - In 2008, estimated share of investment and consumption in total demand for major commodities: 92.3 percent.
  - Exports acted as a catalyst for technology transfer, industrial efficiency, and urbanization, but the main driver for large infrastructure investment was domestic market and urban population needs.
- Prospects (short- to medium-term from source perspective):
  - Investment expected to remain high; economic growth likely above 8 percent over the next five years.
  - Planned/projected investments:
    - Basic construction investment in railways could average RMB 700 billion a year during 2010–14 (Guohai Security Company, 2010).
    - State Grid Corporation announced plan to invest around RMB 4 trillion in “smart grid” technology upgrade between 2011 and 2020 (plan includes investments of US$44 billion by 2012 and US$87 billion by 2020 on UHV power lines).
    - In 2010, investment in the grid is estimated at about RMB 220 billion.
    - Chinese government announced China will invest around RMB 4 trillion in water conservancy in the coming ten years; in 2010, total investment in water conservancy was estimated at about RMB 200 billion.
  - CASS projections for urbanization: 52.4 percent in 2015, 57.7 percent in 2020, and 67.8 percent in 2030 — implying about fourteen million people will join the urban population each year over the next twenty years (CASS, 2010).
  - CASS projection: consumption rate could be raised to 50 percent at the end of 2015 from around 48 percent at present.
- Medium- to long-term outlook and structural adjustments:
  - Investment rate likely to begin to decline or its rate of growth will slow in the second part of the decade, especially in infrastructure and housing.
  - Consumption should start picking up faster after 2015 with improvements in social security and income increases.
  - Energy conservation, environmental protection, and climate change issues will become more pressing; structural adjustment will prioritize increasing consumption, upgrading industries, and reducing natural resource use.
  - China’s annual growth rate could settle down to 6–8 percent in the second part of this decade.

### Exchange Rate, Trade Policy, Supply Constraints, and Price Outlook
- Exchange rate and trade policy:
  - Renminbi has some space to appreciate; appreciation pressure will abate with expected reduction in the trade balance surplus due to rapid growth in imports.
  - Renminbi appreciation will benefit imports, including major mining commodities; limited net benefit for products where China is a net exporter (example: aluminum).
  - Possible policy change: gradual reduction of export rebates could be reintroduced over the long run to reduce the trade surplus and ease accumulation of foreign reserves.
- Supply-side potential and constraints:
  - Significant potential for world copper and aluminum production to expand; largest potential in Canada, Chile, and Peru; other prospects: Brazil, Mexico, Australia, Mongolia, and the African copper belt (D.R. Congo and Zambia).
  - For aluminum, roughly one-third of operating cost is power—future capacity additions likely in regions with low opportunity cost for power.
  - Capacity expansion not expected in North America and Europe due to stagnant demand, higher power costs, environmental regulations, and high labor costs.
  - New projects face lower-grade ores and more difficult locations, raising exploration and development costs.
  - High prices and profits have led to higher wages and demands from host governments/communities for more favorable mineral taxation and profit-sharing arrangements—potentially adverse for new project development if commodity prices soften.
  - Global recession and its prolonged effects likely dampen world demand, helping limit upward shifts in long-run marginal prices.
- Expected demand and price outlook:
  - Major mining commodity prices are inherently volatile and cyclical.
  - Surge in demand in China contributed significantly to the large increase in commodity prices since the early 2000s, alongside other factors (strong world economic growth, low inventories, abundant global liquidity, new and complex financial instruments, and individual geopolitical situations).
  - The current price cycle for metals and minerals is expected to be more prolonged than previous ones due to China’s especially high investment levels, urbanization, and industrialization.
  - Over 2010–15, Chinese demand for major mining commodities will remain very strong, supported by high investment levels, good economic growth potential, and gradually rising consumption rates.
  - In the second half of the decade, the rate of growth of investment should gradually slow with completion of major infrastructure and housing projects; after 2015, China’s demand for major mining commodities will begin to fall gradually with the expected slowdown in investment and infrastructure activities.
  - Rising consumption of metals (e.g., aluminum), recovery in the global economy, and infrastructure investment in other emerging economies (India, Brazil) could offset declines — net result: demand for major mining commodities should remain strong during the decade, sustaining relatively high prices and keeping export receipts strong for Latin American countries in the coming years.

*Source: _wp1186 - 1.3 M.*

### 1.3 M.

### _wp1186 - 1.3 M.

### Overview
- Chinese imports of selected mining commodities rose sharply: iron ore, copper ore, chrome ore, alumina, and manganese ore showed large increases in import volumes over the period covered.
- The chapter assesses iron ore, copper ore, and alumina by examining world output and demand over the past two decades and China’s dependence on foreign supply.
- Source data cited include China Statistical Yearbook 2009 and Ma, Jianming (2010).

### Iron Ore
- China’s total demand for iron ore rose 5.3 times from 164 M. tons in 1998 to 861 M. tons in 2008.
- Domestic output increased 3.3 times from 112 M. tons to 366 M. tons between 1998 and 2008.
- Imports of iron ore rose 8.5 times from 52 M. tons to 444 M. tons over the same period.
- China’s iron ore dependence on imports:
  - 31.6 percent in 1998
  - 54.8 percent in 2008
  - 72.9 percent in 2009
- Exceptional 2009 import dependence attributed to:
  - (a) China’s fiscal stimulus package with heavy investments in real estate and infrastructure after the crisis;
  - (b) compression in demand in 2008 due to high ore prices and a subsequent sharp increase in 2009 following a drop in prices;
  - (c) cuts in domestic iron ore production because profits were adversely affected by the 2008 price decline.
- China’s share in world iron demand rose from 40.2 percent in 2006 to 54.3 percent in 2009.
- Steel production context:
  - In 2005 China produced nearly one-third of the world’s steel.
  - By 2008 China’s share of total world steel production rose to 47.4 percent (Jianmin MA, 2010).
  - Steel production in China nearly doubled during the 1990s and tripled during the 2000s, rising at an average annual rate of over 22 percent.

### Copper Ore
- China’s copper industry evolution:
  - Copper mining output (ktons) historical values: 2.9 (1950), 87.4 (1960), 145.8 (1970), 221.3 (1980), 295.9 (1990), 593.0 (2000), 928.0 (2007).
  - Annual mining output growth rates: 6.6 percent (long-term average noted).
  - Refined copper output (ktons) historical values: 10.5 (1950), 100.3 (1960), 165.3 (1970), 383.6 (1980), 558.7 (1990), 1371.0 (2000), 3499.4 (2007).
  - Annual refined output growth rate averaged 14.3 percent since 1990.
- China’s total copper demand rose from 0.7 M. tons in 1990 to 6.6 M. tons in 2007; annual average growth since 1990 close to 14 percent.
- Smelting growth outpaced mining: smelting annual average growth 14.3 percent vs. mining output 6.6 percent, reflecting increased reliance on copper ore imports processed domestically.
- 2007 net import volumes of copper-related products:
  - 4.5 M. tons of copper ore
  - 0.2 M. tons of crude copper
  - 1.4 M. tons of refined copper
  - 0.6 M. tons of copper products
  - 5.6 M. tons of scrap copper
- The copper trade deficit in 2007 was equivalent to US$30.1 billion.
- Degree of self-sufficiency in copper decreased from 40.6 percent in 1990 to 14 percent in 2007.
- Around two thirds of copper ore used in China are imported.

### Alumina and Aluminum Ore
- 2008 refined aluminum consumption in China was close to 14 M. tons, out of world consumption of 38 M. tons.
- Annual growth rate of China’s refined aluminum consumption averaged close to 17 percent over the past decade.
- Refined aluminum output doubled from 6 M. tons in 2003 to 13.2 M. tons in 2008.
- China’s bauxite and alumina supply dynamics:
  - China’s bauxite output in 2008 reached 25.2 M. tons, corresponding to an annual average growth rate of 20 percent over the past decade (Mei Zhang, 2010).
  - By 2008 bauxite production (25.2 M. tons) was almost identical to aluminum ore import at 25.7 M. tons.
- China’s alumina dependency on imports:
  - 32 percent in 1998
  - 48 percent in 2003
  - 17 percent in 2008
- Approximately 40 percent of Chinese aluminum output relies on raw materials from outside China (Jianming Ma, 2009).
- China’s total demand for alumina share of world total rose to around 28 percent in 2005 (available data).
- Import and output dynamics:
  - Imports of alumina grew rapidly prior to 2005, then declined while domestic alumina output grew rapidly from 2005 to 2008.
- Prices and import volumes linkage:
  - Alumina and aluminum ore prices peaked in the years with largest import volumes in 2006 and 2008 respectively.

### Major Mining Commodities Prices and Linkage with China’s Demand
- Major mining commodity prices rose sharply since 2003.
- Late 1990s low commodity prices led to low investment and closure of some mines; strong global demand since then, including from China, drove inventories to low levels and created capacity constraints that pushed prices up.
- China is a large net importer of copper ore, iron ore, and nickel — commodities which registered the largest price increases.
- China has been a net exporter of aluminum since 2002, which may explain why aluminum prices rose by only a fraction compared with most other commodity prices.
- China’s demand impact:
  - China accounted for two-thirds of world demand growth between 1999 and 2005.
  - During that period China’s demand for major metals grew at an average rate of 14.7 percent a year.
  - China produces and consumes nearly one third of most major metals, except for nickel and copper.
- Steel trade shifts:
  - China historically a net importer of steel; became a net exporter in 2006 and ranked first in the world as net exporter in 2008; in 2009 it became a net importer again due to strong domestic demand and reduced exports after the financial crisis.

### Key Drivers of Strong Demand for Minerals and Metals in China
- GDP composition and consumption:
  - Consumption has accounted for less than 50 percent of GDP in recent years in China, compared with a world average of close to 80 percent.
  - Private household consumption in China is 34 percent of GDP.
  - By comparison, middle-income countries average 60 percent of GDP from private household consumption; low- and middle-income countries average 41 percent.
- Implication: The structural evolution of China’s GDP composition (low consumption share, high investment share) has been a major driver of strong demand for major mining commodities and upward pressure on their prices.

*Source: _wp1186 - 1.3 M.*

### 62.3 percent in 2000 to 48.6 percent in 2009. Over the same period, the share of investment

### Share to GDP: Consumption, Investment, and Net Exports

### Changes in GDP composition (2000–2009; 2000–2007 highlights)
- Consumption share fell from 62.3 percent in 2000 to 48.6 percent in 2009.
- Share of investment in GDP (capital formation rate) rose from 35.3 percent to 47.5 percent between 2000 and 2009.
- Share of net exports increased from 2.4 percent to 3.3 percent (after having peaked at 8.8 percent in 2007).
- In 2009, the share of consumption in China was only slightly higher than that of gross capital formation, with both of them close to 48 percent of GDP.
- Changes in levels from 2000 to 2007:
  - Final consumption increased 1.1 times.
  - Capital formation rose 2.2 times.
  - Net exports rose 8.8 times.
- From 2000 to 2009:
  - The share of consumption in GDP declined significantly (by 13½ percentage points of GDP).
  - The share of investment rose sharply (by over 12 percentage points of GDP), particularly since 2004.
  - Net exports also increased significantly since 2004.
- A sharp increase in investment occurred in 2009, following the large stimulus package China implemented in the wake of the global crisis.

### Impact on demand for mining commodities and trade
- The sharp rise in the shares of investment and net exports to GDP led to a dramatic rise in total demand and imports of major mining commodities.
- The report raises the question of how changes in China’s growth composition directly affected world commodity prices and whether development of China’s interior and infrastructure needs further boosted commodity demand.

### Sectoral users of metals (steel and aluminum; 2003 data used as representative)
- Steel consumption by end use in China, 2003 (percent shares):
  - Infrastructure: 9%
  - Machinery: 25%
  - Transport: 10%
  - Business construction: 18%
  - Residential construction: 28%
  - Other: 10%
  - Note: Infrastructure and construction (residential and business) together accounted for over half (55 percent) of Chinese steel consumption in 2003.
  - Machinery accounted for about one fourth of total steel consumption; steel required for machine production has grown steadily, fueled by rising internal demand for machines and China’s emergence as a major exporter of machine tools.
  - The automobile industry was the third largest sector for steel use; automobile production increased ten times between 1998 and 2008, from 0.5 million cars to 5 million cars.
- Aluminum consumption by end use in China, 2003 (percent shares):
  - Construction: 36%
  - Power: 16%
  - Package: 10%
  - Consumer goods: 10%
  - Manufacturing: 8%
  - Transport: 9%
  - Other: 11%
  - Construction accounted for about one third of total Chinese aluminum demand, compared with 20-25 percent in developed economies (Europe, Japan, United States).
  - The energy sector accounted for 16 percent of aluminum consumption; aluminum consumption in this sector rose by 70 percent from 1999–2003.
  - Other important aluminum demand sectors: appliance production (especially air conditioners), packaging, and transportation (automobiles and other).

### Urbanization, income growth, and implications for commodity demand
- Urbanization and industrialization have been primary drivers of China’s demand for metals:
  - China’s urbanization rate was less than 18 percent in 1978 and rose to close to 47 percent in 2009, consistent with an average increase of 1 percent a year over the past three decades.
  - This implies about 14 million people move from rural areas to urban areas each year.
  - From 1978 to 2008, China’s GDP increased 17 times.
  - Over the same period, industrial production increased 25 times in volume and 27 times in value.
- Consequences for commodity demand:
  - Rising incomes, rapid urbanization, and industrialization have dramatically increased demand for buildings, cars, appliances, consumer goods, and transport and communication improvements—all dependent on metals.
  - Creation of a commercial housing market and tapering of government-supplied residences since the late 1990s have increased private home purchases, spurring widespread construction of new apartment buildings.
  - Construction boom drives increasing demand for steel, aluminum, copper, and other metals; steel is extensively used in building, machinery manufacturing, and automobiles; aluminum is used for windows and doors; copper is extensively used in electricity generation and transmission systems.

### Investment in fixed assets and sectoral structure
- Total investment in fixed assets in China increased 180 times in nominal terms from 1981 to 2008, while GDP increased 61 times over the same period.
- Structure of fixed asset investment (shares):
  - Manufacturing: 33 percent of total.
  - Real estate: 23 percent of total.
  - Transportation and storage: 10 percent of total.
- Investment in residential buildings experienced long-term accelerating growth, especially since 2003.
- From 2000 to 2008, the length of highways rose 2.7 times.

*Source: _wp1186 - 62.3 percent in 2000 to 48.6 percent in 2009. Over the same period, the share of investment*

### 3.7 times, civil aviation routes 1.6 times, and petroleum and gas pipelines 2.4 times.

### _wp1186 - 3.7 times, civil aviation routes 1.6 times, and petroleum and gas pipelines 2.4 times.

### Changes in composition of China’s growth and demand for minerals
- Changes in the composition of growth in China have led to a sharp increase in the demand for major minerals and metals, which is an important factor affecting their prices.
- Economic pick up in the interior of China and emphasis on infrastructure development have boosted demand for major mining commodities.
- Critical sectors highly intensive in metals—construction, real estate, and automobile—have experienced high rates of growth, further increasing demand for metals and related minerals.

### Investment trends and scale
- Investment rose from RMB 96.1 billion in 1981 to RMB 17,282.8 billion in 2008; GDP rose from RMB 489.2 billion to RMB 30,067 billion over the same period. (Source: China Statistical Yearbook 2009, as cited)
- Figure breakdown (2008 shares of fixed asset investment): Mining; 4.5, Manufacturing; 32.8, Production and Supply of Electricity, Gas and Water; 6.4, Transport, Storage and Post; 9.8, Real Estate; 23.4, Management of water conservatory, environmental and public facilities; 7.8, Others; 15.3. (Sources: China’s Statistical Yearbook (2009); author’s estimates)
- Total investment in residential buildings and growth rates rose markedly through 1995–2008 (China Statistical Yearbook (1996–2009); Author’s estimates).

### Investment versus net exports in demand for mining commodities
- In 2008, estimated relative share of net exports in total demand for major commodities: 7.7 percent.
- In 2008, estimated share of investment and consumption in total demand for major commodities: 92.3 percent.
- Exports acted as a catalyst: bringing technology and management knowledge, enhancing industrial efficiency, intensifying domestic competition, and helping create jobs in export-oriented factories—accelerating urbanization and growth of services.
- Main driver for large infrastructure investment: needs of a huge domestic market and an increasingly large urban population, rather than solely export support.

### Prospects for growth, investment, and urbanization (short- to medium-term)
- China is at a new turning point of economic structural adjustment and growth model; policies emphasize expanded domestic demand.
- Over the next five years (from the perspective of the source), investment is expected to remain high; economic growth will likely be above 8 percent.
- Specific planned and projected investments:
  - Basic construction investment in the railways sector could average RMB 700 billion a year during 2010–14 (Guohai Security Company, 2010).
  - State Grid Corporation announced plan to invest around RMB 4 trillion in “smart grid” technology upgrade between 2011 and 2020 (the plan includes investments of US$44 billion by 2012 and US$87 billion by 2020 on UHV power lines, among other elements).
  - In 2010, investment in the grid is estimated at about RMB 220 billion.
  - Chinese government announced China will invest around RMB 4 trillion in water conservancy in the coming ten years; in 2010, total investment in water conservancy was estimated at about RMB 200 billion.
- China’s urbanization rate around 50 percent; CASS projections: 52.4 percent in 2015, 57.7 percent in 2020, and 67.8 percent in 2030 — implying about fourteen million people will join the urban population each year over the next twenty years (CASS, 2010).
- CASS research projection: consumption rate could be raised to 50 percent at the end of 2015 from around 48 percent at present (reflecting a very slow increase over the next five years).

### Medium- to long-term outlook and structural adjustments
- Over the second part of the decade, the investment rate will likely begin to decline or its rate of growth will slow, especially in infrastructure and housing.
- Consumption should start picking up faster after 2015 with improvements in the social security system and increases in incomes.
- Considering ageing and social spending needs, government will need to spend more on social security with reduced space for investment expenditure.
- Energy conservation, environmental protection, and climate change issues will become more pressing; economic structural adjustment will prioritize increasing consumption, upgrading industries, and reducing natural resource use.
- China’s annual growth rate could settle down to 6–8 percent in the second part of this decade.

### Exchange rate and trade policy impacts on commodity demand
- Renminbi has some space to appreciate; appreciation pressure will abate with the expected reduction in the trade balance surplus due to rapid growth in imports.
- Renminbi appreciation will benefit imports, including imports of major mining commodities; limited net benefit for products where China is a net exporter (example: aluminum).
- Possible policy change: gradual reduction of export rebates could be reintroduced over the long run to reduce the trade surplus and ease accumulation of foreign reserves.
- Growth of production capacity in steel and aluminum sectors is expected to be constrained due to excessive capacities and high resource consumption, with adverse environmental impacts.

### Supply-side potential and constraints
- Significant potential for world copper and aluminum production to expand; largest potential in Canada, Chile, and Peru; other prospects: Brazil, Mexico, Australia, Mongolia, and the African copper belt (D.R. Congo and Zambia).
- For aluminum, roughly one-third of operating cost is power—future capacity additions likely in regions with low opportunity cost for power (hydropower, natural gas, low grade coal, oil).
- Capacity expansion not expected in North America and Europe due to stagnant demand, higher power costs, environmental regulations, and high labor costs.
- Mining industry cost reductions via technological development and better project management; dramatic expansions in mine production capacity in iron ore (Western Australia, Brazil) and copper (Chile).
- New projects face lower-grade ores and more difficult locations, raising exploration and development costs.
- High prices and profits have led to higher wages and demands from host governments/communities for more favorable mineral taxation and profit-sharing arrangements—potentially adverse for new project development if commodity prices soften.
- Global recession and its prolonged effects likely dampen world demand, helping limit upward shifts in long-run marginal prices.

### Expected demand and price outlook for major mining commodities
- Major mining commodity prices are inherently volatile and cyclical.
- Surge in demand in China contributed significantly to the large increase in commodity prices since the early 2000s, alongside other factors (strong world economic growth, low inventories, abundant global liquidity, new and complex financial instruments, and individual geopolitical situations).
- The current price cycle for metals and minerals is expected to be more prolonged than previous ones due to China’s especially high investment levels, urbanization, and industrialization.
- Over 2010–15, Chinese demand for major mining commodities will remain very strong, supported by high investment levels, good economic growth potential, and gradually rising consumption rates.
- In the second half of the decade, the rate of growth of investment should gradually slow with completion of major infrastructure and housing projects; as investment slows and net exports share shrinks, GDP growth will increasingly rely on domestic consumption.
- After 2015, China’s demand for major mining commodities will begin to fall gradually with the expected slowdown in investment and infrastructure activities; however, rising consumption of metals (e.g., aluminum) and recovery in the global economy, plus infrastructure investment in other emerging economies (India, Brazil), could offset declines.
- Net result: demand for major mining commodities should remain strong during the decade, sustaining relatively high prices and keeping export receipts strong for Latin American countries in the coming years.

*Source: IMF working paper content provided in the supplied PDF excerpt.*

### REFERENCES

### _wp1186 - REFERENCES

### References
- Bu, Zhongdong, and Xinping Zhang, 2010, China Railway Investment Will Maintain a High Level in the Coming Five Years, Guohai Security Company. (http://stock.sohu.com/20100610/n272690821.shtml).
- CASS, 2010, 2010 Macro economy Bluebook. Social Science Literature Press, Beijing.
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### Supplemental Appendix — Figures (captions and sources)
- Figure A.1. Construction and Installation and Its Growth Rate  
  - Source: China Statisitical Yearbook (1982-2009); author's estimates.
  - Axis labels shown: Construction and installation (LHS); Growth rate(percent, RHS).
- Figure A.2. Structure of Investment in Fixed Assets in the Whole China (2008)  
  - Sources: China Statistical Yearbook (1982-2009); author's estimates.
  - Components shown: Construction and installation, 60.7; Purchase of equipments and instruments, 23.5; Others, 15.8.
- Figure A.3. World Demand-Steel, 2000–04
- Figure A.4. World Demand-Copper, 1997–2007  
  - Source: World Metal Statistics Yearbook (2007-2008). Here, world refined copper consumption is calculated as world demand.
- Figure A.5. World Demand-Aluminum (1997–2007)  
  - Source: World Metal Statistics Yearbook (2007-2008).
- Figure A.6. Iron Ore and Concentrates Import of China, 1997–2010: Volume and Its Growth Rate  
  - Source: China Statistical Yearbook (1982-2009); author's estimates.
  - Axis labels shown: Volume (Mton, LHS); Growth rate (percent, RHS).
- Figure A.7. 2008 Main Iron Ore Importers’ Shares in the World (In millions of tons)
- Figure A.8. 2008 Main Iron Ore Importers’ Shares in the World  
  - Values shown: 443.7; 105.3; 49.5; 125; 127 (visual bar labels).
  - Pie share breakdown shown: China, 52.2; Japan, 12.4; Korea, 5.8; Europe, 14.7; Other region, 14.9.
  - Sources: China Statistical Yearbook (1982-2009); author's estimates.
- Figure A.9. Main Iron Ore Exporters’ Shares in the World, 2008
- Figure A.10. Main Iron Ore Exporters’ Shares in the World, 2008  
  - Bar values shown: 31.5; 34.8; 11.2; 3.6; 2.9; 16.0.
  - Pie share breakdown: Brazil, 31.5; Australia, 34.8; India, 11.2; South Africa, 3.6; Canada, 2.9; Other region, 16.0.
  - Source: http://news.sohu.com/s2009/tiekuangshi2010/
- Figure A.11. China Iron Ore Import Sources, Jan.–Oct. 2008

### Supplemental Appendix — Tables and Key Statistics
- Table A.1. Comparison on Original Iron Ore Output in China and Output Converted as World Average Ferric Content  
  - Note: China original domestic iron ore output data is from China Statistical Yearbook (various issues); The conversion data from 2006 through 2009 is from Jianming Ma(2010), other data is roughly converted by 1:2.2 (1 ton conversion equals to 2.2 tons original iron ore output, and 2.2 is a roughly average of data from 2006 through 2009 by Jianming Ma).
  - Sample data (Original iron ore output / Conversion as world average FM content / Conversion Growth rate):
    - 1998: Original iron ore output Millions of tons 247; Conversion as world average FM content Millions of tons 112; Conversion Growth rate percent n/a
    - 1999: Original iron ore output Millions of tons 237; Conversion as world average FM content Millions of tons 108; Conversion Growth rate percent -4
    - 2009: Original iron ore output Millions of tons 824; Conversion as world average FM content Millions of tons 366; Conversion Growth rate percent -36
  - Sources: China Statistical Yearbooks; World total production volume data from Ma, Jianming (2010); Author’s calculation.
- Table A.2. Iron Ore total demand in China and Its Dependence to Import  
  - Note 1/: China domestic iron ore output has been converted as world iron ore average ferric content. Here China total demand for iron ore are roughly calculated as the total of China domestic iron ore output and China iron ore import.
  - Sample rows (Year / China’s domestic Iron Ore output Volume / Growth rate / China’s Iron Ore Import Volume / Growth rate / China’s Total Demand for Iron Ore Volume / Growth rate, percent):
    - 1998: 112.2 n/a / 51.8 n/a / 164.0 n/a 31.6
    - 2003: 118.8 13.0 / 148.1 32.9 / 266.9 23.2 55.5
    - 2009: 233.7 -36.2 / 627.8 41.5 / 861.5 6.4 72.9
  - Sources: China Statistical Yearbooks; World total production volume data from Ma, Jianming (2010); some data from table 2; Author’s calculation.
- Table A.3. China’s Copper Mining Products, Trade Balance and International Copper Price  
  - Sample entries (Year / Balance of copper trade (100m$) / Annual average price ($/ton)):
    - 1990: -1.9 1496.7
    - 1997: -19.6 1775.7
    - 2007: -301.0 7118.5
  - Source: Mei ZHANG(2008).
- Table A.4. China’s Major Mining Commodities Import Average Prices and Their Indexes  
  - Commodity headings shown: Average Price Iron ore and concentrates; Manganese ore and concentrate; Copper ore and concentrate; Chrome ore and concentrate; Alumina.
  - Sample price-index entries:
    - 1997: Iron ore $29.3 Index(1997=100) 100.0; Manganese 93.8 Index 100.0; Copper 448.0 Index 100.0; Chrome 124.5 Index 100.0; Alumina 219.0 Index 100.0
    - 2008: Iron ore 136.5 Index 465.8; Alumina 396.8 Index 318.8
    - Jan-Jul 2010: Iron ore 116.0 Index 395.9; Alumina 158.1
  - Sources: China Statistical Yearbooks (1998-2009); author’s estimates.
- Table A.5. China GDP Composition: Consumption, Capital Formation and Net Export in Share to GDP (percent)  
  - Sample rows (Year / Final consumption expenditure / Gross Capital Formation / Net Export of Goods and Service):
    - 1978: 62,1 38,2 -0,3
    - 1990: 62,5 34,9 2,6
    - 2009: 48,6 47,5 3,8
  - Source: China Statistical Yearbook (1978-2009); author’s estimates.
- Table A.6. 2008 Main Iron Ore Importers’ Shares in the World  
  - Source: http://news.sohu.com/s2009/tiekuangshi2010/
- Table A.7. 2008 Main Iron Ore Exporters’ Shares in the World  
  - Source: http://news.sohu.com/s2009/tiekuangshi2010/
- Table A.8. China Iron Ore Import Source  
  - Source: http://money.163com/special/002534DS/2009iron.html
  - Importer shares table:
    - Countries or regions / Mton / Share of total (percent)
    - China 443.7 52.2
    - Japan 105.3 12.4
    - Korea 49.5 5.8
    - Europe 125.0 14.7
    - Other region 127.0 14.9
    - Total 850.5 100.0
  - Exporter shares table:
    - Countries and regions / 100 million ton / Share of total (%)
    - Brazil 2.8 31.5
    - Australia 3.1 34.8
    - India 1.0 11.3
    - South Africa 0.3 3.6
    - Canada 0.3 2.9
    - Other regions 1.4 16.0
    - Total 9 100
  - Import source Jan–Oct 2008 vs 2007 (Value (Mton) / Share of total (percent)):
    - Australia 155.4 0.4 / 145.6 0.4
    - Brazil 85.3 0.2 / 97.6 0.3
    - India 76.8 0.2 / 79.4 0.2
    - South Africa 12.2 0.0 / 12.2 0.0
    - Ukraine 60 20
    - Indonesia 60 40
    - Iran 4.9 0.0 / 5.0 0.0
    - China total import 376.7 1.0 / 383.1 1.0
- Table A.9. Output of Industrial Products Related to Iron Ore in China  
  - Products: Pig Iron; Crude Steel; Rolled Steel (values in (10 000 tons) and growth rate (percent)).
  - Sample historical entries:
    - 1978: Pig Iron 3,479 n/a; Crude Steel 3,178 n/a; Rolled Steel 2,208 n/a
    - 1990: Pig Iron 6,238 42.3; Crude Steel 6,635 41.8; Rolled Steel 5,153 39.5
    - 2003: Pig Iron 21,367 25.1; Crude Steel 22,234 21.9; Rolled Steel 24,108 25.2
    - 2008: Pig Iron 47,067 -1.2; Crude Steel 50,092 2.4; Rolled Steel 58,488 3.4
  - Source: China Statistic Yearbook 2009. Available at < http://www.stats.gov.cn/tjsj/ndsj/>.

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