In our first post in this series, we examined the widely-held belief that China’s steel demand will continue to rise at a rapid rate. FT Alphaville, along with others, contend that such forecasts are on shaky ground. This is, in part, because of the dubiousness of one of the underlying assumptions: that China will rapidly urbanise more of its population. (Here’s a very recent example of this argument, from Stephen Roach.)
The proportion Chinese living in urban areas just passed the 50 per cent mark in the past year but, the story goes, there is more to come. This will in turn mean more industrialisation, more modernisation, a bigger and consuming middle class and of course more GDP growth. In other words: Read more
It used to be an accepted fact that China’s appetite for steel and steel’s main ingredients — primarily coking coal and iron ore — would continue to rise sharply, not just in absolute terms but at an accelerated pace.
Annual steel consumption had been expected to rise from 2011′s 680m-plus metric tonnes to 1bn metric tonnes by 2020. This forecast has been a mainstay of many China-related predictions for some time, particularly in the mining sector. It was still being cited by BHP Billiton in March, even while the miner’s head of iron ore surprised many with a bearish tone. Since then, however, the world’s two biggest miners began to back away from it and this month Rio Tinto is talking about 1bn tonnes of steel by 2030 — a hazily far-off date. Read more
It’s not just excessive investment, particularly the fixed-asset sort, that’s a problem in China. It’s the wrong kind of investment that is the issue — projects that are simply uneconomic.
Exhibit 1: a somewhat ambitious airport-building programme, which is vexxing Gordon Chang: Read more
Even if you don’t buy the once-popular assertion that China needs more of just about everything to meet its growing economy, zero growth in steel consumption might seem pessimistic, given that rural Chinese are still moving to cities in large numbers.
Nomura analysts Matthew Cross and Ivan Lee looked at China’s urbanisation rate and concluded that it can keep progressing at its current pace for years without needing an increased rate of steel consumption. In fact, they argue that China’s annual steel needs won’t increase at all in 2012 and 2013 — and that’s with new government stimulus. Read more
FT Alphaville reports that Citigroup’s global strategists are recommending investors play the urbanisation trend by buying into water companies, arguing that the concentration of the world’s population and increasing standards of life will drive up demand for the liquid commodity. Even Willem Buiter, Citigroup’s chief economist, a man most often seen railing at the vagaries of central banks, has got stuck in with a 4,000-word essay on the subject. “I see fleets of water tankers (single-hulled!) and storage facilities that will dwarf those we currently have for oil, natural gas and LNG,” he writes. Read more
Remember the economic super-cycle?
Well, it never really went away. At least not according to Standard Chartered, which has just published a huge report on the world economy and the decades of strong growth that lie ahead. Read more