Growth in China s resource use still has some way to go

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Developments in China implications for Australia s resources industries Wayne Calder Deputy Executive Director Bureau of Resources and Energy Economics (BREE) 2014 Growth in China s resource use still has some way to go 1

Several factors will support growth in resource use Economic growth Urbanisation Population Rising household incomes Slowing growth, but from a high base China Boom GFC & Rebound China Bust??? 1 1 1 16 14 12 8 6 4 Billion Yuan Source: IMF 1 3 5 7 9 2011 2013 Marginal GDP Growth (LHS) GDP Growth Rate % (RHS) 2 %yr 2

China will continue to become more urbanised 1 1 1 Million people Source: UN 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 0 5 20 2015 2020 2025 2030 2035 2040 2045 2050 urban rural Households have greater income and are spending more 30 25 20 15 5 000 RMB/ capita 1985 1988 1991 1994 1997 0 3 6 9 2012 urban income rural income urban consumption rural consumption Source: CEIC, China National Bureau of Statistics 3

This growth is not without risks Government policies focused on the economy and environment may alter growth patterns Outlook for key commodity markets largely positive 4

Electricity generation will continue to grow Electricity generation has 500 300 been increasing rapidly and will continue to grow Thermal (coal and gas) sources account for the 0 Billion kwh bulk of generation Inertia in the energy system will prevent any rapid change in Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan- Jan-12 Jan-14 generation mix Thermal Hydro Nuclear Wind Other Coal will still play an important role Existing large fleet with long lives Policies banning new plants are not growth areas Still plans for substantial new coal-fired capacity Coal will be important for ensuring system stability Expected to remain a major importer over the medium term EU 27 Japan South Korea India China 5

Strong growth in gas demand Growth in gas demand remains strong, particularly up to 2020 Gas supply continues to compete with coal, renewables, nuclear LNG competing with indigenous shale and pipeline imports Australia has the credentials to remain a key supplier of LNG, but the supply of new demand depends on it remaining cost competitive Source: Nexant; IEA; BREE Steel production growth to be steady 1 Consumption will be supported by investment in rail and 1 construction but will moderate 1 The capacity being close in 2014 is small proportion of total capacity Closures are expected to be offset by new, more efficient capacity being developed in the Western regions 2013 2014 2015 2016 2017 2018 2019 China EU 28 Japan US India 6

Will rely more on iron ore imports Higher steel production will necessitate more iron ore Many Chinese producers are loss-making at less than US$0/tonne Chinese producers expected to increase their reliance on imported iron ore Use of scrap will increase but unlikely to have any major effect in medium term 1 1 1 2013 2014 2015 2016 2017 2018 2019 China EU 28 Japan South Korea Australia has and will continue to benefit from China s expansion 7

Thermal coal: China price dependent Share of exports 2013 250 Australia s thermal coal exports 25 South Korea 17% other Chinese 7% Taipei 9% Japan 44% 150 0 20 15 China 23% 50 5 2013-14 $Ab volume value (rhs) Metallurgical coal: China a large market Share of exports 2013 250 Australia s met coal exports 50 South Korea % other 19% China 27% 150 0 40 30 20 India 19% Japan 25% 50 2013-14 $Ab volume value (rhs) 8

LNG: China small but growing Share of exports 2013 China 16% South Korea 3% Chinese Taipei 0% other 0% 90 75 60 Australia s LNG exports 60 50 40 45 30 Japan 81% 30 15 20 2013-14 $Ab volume value (rhs) Iron ore: China is a major market Share of exports 2013 Japan 14% South Korea 8% Chinese Taipei 2% Australia s iron ore exports 0 80 60 40 China 76% 20 2013-14 $Ab volume value (rhs) 9

The production phase to increase export earnings 280 240 160 120 80 40 2013-14 A$b Growth in export values. Forecasts revised down due to lower prices. Forecast total value of exports in 2018-19 = $254 billion (in real terms). energy resources Conclusions There is still some steam left in China s commodity demand supported by economic growth and urbanisation prospects Government policies will have an affect on China s growth path and commodity consumption patterns but will take some time to make the adjustment China is a major market for Australia s resources and energy commodity exports and will continue to be a driving force for export growth