Consumerism fuels mainland's need for coal and ore imports
Rising consumerism will continue to fuel the mainland's demand for imported iron ore and coal, said the head of Hong Kong-headquartered dry bulk shipping company Courage Marine.
Hsu Chin-chien, chairman of the Singapore listed company, said it also 'wouldn't be a bad idea' if China built a strategic reserve of iron ore to help even out price fluctuations.
He said that for the first time in the country's history, a large proportion of the mainland's 1.3 billion people 'have the ability to consume. China is starting from a low base but people are buying their first home, their first car, and their first refrigerator'.
Hsu added: 'I still see great potential for growth.' He pointed out that over the past six years the growth in iron ore imports has been 'astronomical', and while Beijing has said it would close smaller steel mills the volume of iron ore imports has continued to grow.
Macquarie Research has forecast that the mainland would import 619 million tonnes of iron ore this year, down slightly from 623 million tonnes in 2009, which was up from 438 million tonnes in 2008. Macquarie forecast iron ore imports would rebound to 709 million tonnes in 2011, 785 million tonnes in 2012 and 863 million tonnes in 2013.
Hsu said in the past two or three years China had resisted the high iron ore prices demanded by Brazilian and Australian ore producers, including Vale and BHP Billiton, after seeing a 71.5 per cent rise in 2005.
As a result, 'having a strategic reserve of iron ore was not a bad idea', he said, noting that Vale was thinking about creating a strategic stockpile in Malaysia to make it more competitive with Australian producers.
With a 45-day transit from Brazil's Tubarao port to the mainland compared with around eight days from Western Australia's Port Hedland, Hsu said with a supply in Malaysia Vale could react more quickly to increases in the spot price of iron ore.
Hsu also remained bullish about prospects for the growth of coal imports into China. He said the logistics of transporting coal from mines in the north of the country to power plants in the south was a 'challenge'. 'For most power plants it is cheaper to import coal from Indonesia and Vietnam rather than bring coal from north to the south,' he said.
Hsu pointed out that coal deposits in countries such as India and Indonesia are closer to the surface than in China and therefore cheaper to extract.
Macquarie said China's thermal coal (largely for power generation) imports had grown from 35 million tonnes in 2008 to 80 million tonnes last year, while imports were forecast to be 102 million tonnes this year.
'China is learning from the United States which has a strategic reserve of oil but still imports a huge amount of oil. China is not short of cash so why not import coal and preserve its own reserves for the future,' Hsu said.
