Chinese Demand For Metals Expands

By: Anthony_David

China’s demand for resources is constantly increasing and Chinese companies have been bidding and acquiring overseas companies over the last few years. China has been importing all its oil from 1993 and last year, Chinese oil companies spent over $30 billion on deals overseas. In the metals and minerals sectors, China became a net importer only recently and last year spent about $4.5 billion on mining deals overseas. As if to make up for lost time, Chinese companies are in a rush to acquire metal and mineral resources overseas.

In January this year, China Shenhua Energy Co. along with Peabody Energy and Japan’s Mitsui & Company, Ltd. bid for the Tavan Tolgoi coal mine in Mongolia, one of the largest coal reserves in the world. During the same month, Hong Kong’s Minmetals Resources made an unsuccessful bid for Zambia’s Equinox Minerals, a mid-size copper producer. Another high-profile unsuccessful bid was made in 2009 when the Aluminum Company of China (Chinalco), which in 2008 had purchased a 9% stake in Rio Tinto, made an attempt to more than double its stake to 19% in 2009. However, with a reversal in Rio Tinto’s fortunes, the company succeeded in bailing itself out and Chinalco had to abandon its $19.5 billion deal.

Luo Tao, general manager China Nonferrous Metal Mining Co (Group) (CNMC), expects two of its large overseas projects – in Zambia and Myanmar – to begin functioning this year.

As the nation’s demand for metals rises, the Chinese government has been encouraging domestic companies to explore opportunities for acquisition. Observers of the global mining market expect mergers and acquisitions to become more commonplace and at the same time, ensure a long-term supply of metals. In continents such as Africa that need foreign investments desperately, Chinese companies will always be welcomed while other nations will do anything to prevent Chinese takeovers. Mike Elliot, the head of metals and mining for Ernst & Young said, “In five years’ time, when you talk about the major diversified global mining houses, there will be at least one or two that will be based in China.”

China reportedly is the largest holder of American debt and owns $894.8 billion of US Treasury bonds. However, the nation is losing interest in the spending spree of the US and is slowly reducing its holdings and spreading its risks across several nations.

Reports also show that China is willing to use its huge holdings to influence the political and financial decisions of the US. The danger of the US handing over such massive financial clout to China is a much discussed topic in the US.

Wang Jun, an economist at the China Centre for International Economic Exchange suggests that China should look at other investment channels and instead of Treasury bonds, exchange US debt with shares in its infrastructure construction programs. He also suggests using the debt to fund China’s overseas resource acquisitions. However, the proposal may not be completely feasible since many governments have various barriers set up for foreign investments.

By Anthony David

http://www.criticalstrategicmetals.com

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