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Chinese polish for metal sheen

Mumbai, Nov. 9: A high demand of metals in China may propel global growth rates in commodities to their highest levels since 1960s, says a leading research agency tracking the global market for metal commodities.

Research agency Macquarie Research Metals and Mining has, in a presentation to CLSA, a leading foreign investment bank, said when economic growth in the rest of the world recovers, “the demand growth unleashed will create a bull market in many commodities”.

While Macquarie has focussed on China’s metal demand boom, it has remained silent on the potential of the Indian market. However, analysts and chiefs of many domestic companies are optimistic that the gains of the rising Chinese demand will spill over to India.

The voracious Chinese demand for metals is expected to sustain for a decade. The Indian commodity players also expect a rise in local demand as they undertake various expansion projects in the coming months.

Macquarie expects raw materials like iron ore, nickel and copper and alumina to emerge winners, as the Chinese growth potential is limited in these commodities.

In 2004-05, China is expected to import Carbon steel, stainless steel, lead and zinc concentrates.

Steel sector giant Tata Steel, Aditya Birla group-controlled aluminium firm Hindalco, Anil Agarwal's Sterlite group which is expanding capacities in aluminium, copper and zinc, Pramod Mittal's Ispat and Sajjan Jindal's flagship company Jindal Vijaynagar are gearing up to meet the surge in demand.

The rising demand will also benefit shipping companies, railways and ports.

Chinese companies are expected to re-direct investment activities from domestic to offshore markets, the report says.

Hindalco and Sterlite have acquired copper mines in Australia and Tata Steel is in advanced stages to set up a ferro-chrome unit in South Africa, while it has acquired a wire rope unit in Sri Lanka.

Macquarie adds that shortages of iron ore and nickel will boost steel and stainless steel prices. In the Indian context, the domestic metal producers have a win-win situation. Analysts tracking the local companies say domestic demand for metals are also expected to rise.

The per capita metal consumption in India is low when compared to other countries. Per capita consumption for copper, aluminium and zinc was 0.27 kg, 0.59 kg and 0.30 kg, respectively, in 2002. This compares with Chinese consumption of 2.16 kg, 3.70 kg and 1.35 kg, respectively, per head in 2002.

High growth in domestic demand will be driven by infrastructure improvements, such as transport, automotive and telecommunications.

Hindustan Zinc has raised $125 million to fund expansion. It will almost double its zinc capacity to over 400,000 tonnes a year.

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