Is China Syndrome blessing or curse?Is China Syndrome blessing or curse?
By: Dorothy Kosich
Posted: '24-MAY-04 07:00' GMT © Mineweb 1997-2004
RENO, NV (Mineweb.com) -- As mining industry observers well know, China’s seemingly insatiable demand for raw materials is reshaping the commodities market and influencing the future of international mining.
Paradoxically, the blessing bestowed upon the mining industry by the China Syndrome has also become mining’s logistical and financial nightmare for shipping of ores and concentrates, and getting materials and operating equipment to build and operate new mines. For instance, the construction boom, which builds the equivalent of the Boston skyline every year, gobbled up one-third of world steel production, one-fourth of its copper, one-fifth of its aluminium and nearly half of its cement. For instance, China is expected to import 180 million tons of iron ore this year, up 21% from 2003.
How many times recently have analysts and shareholders heard frustrated mining executives bemoaning the logistics factor this year? This past week, the CEO for Northern Orion told analysts of his frustration with a late shipment of copper concentrates, which hurt the company’s first quarter results.
China’s dramatic need for metals and minerals—combined with its booming economy--is creating huge problems in shipping. Today 55% of all international freight is shipped in containers. Cazenove reported that last year China accounted for 70% of the global increase in seaborne dry bulk trade.
Shipyards in Japan and Korea, which make most of the world’s freighters, have orders through 2007. China is building dozens of new shipyards including the world’s largest in Shanghai. Lloyd’s List (a shipping industry bible published by Lloyd’s of London) estimated that global ship building orders have doubled to a record 1,600 vessels. Ironically, since there isn’t enough available ore to make the steel, fleet and port expansions can’t meet the growing shipping demand.
A recent report by Reuters estimates that as much as 25% of the world’s bulk shipping capacity is tied up in waiting lines. At one of China’s major iron ore import terminals near Shanghai, ships must wait a month to berth and offload. In India, ships must wait as long as 30 days to load iron ore destined for China. The Baltic Dry Index, which is the benchmark for freight rates for dry cargoes such as ores, soared more than 170% last year. To get a feel for the boom shipping is now experiencing, note that the Baltic Dry Index stood at 873 when China joined the WTO in 2001. A recent index reading was 5,545, a record. While the index doesn’t deal in shares, it does reflect real world carriers with hulls or containers filled with iron, coal, concentrates, or other commodities.
Data published by Mitsui O.S.K. Lines of Japan shows freight rates have doubled this year compared to 2003. Mitsui O.S.K. Lines, Ltd. President Kunio Suzuki recently announced the launch of a China-Australia Loop on top of its existing two loop weekly service between North Asia/South China and Australia. Ships will call twice weekly at Shanghai, which is a gateway port to many Yangtze River ports.
In Australia, mega-miner Rio Tinto has spent $1.25 billion for port, rail, and mine improvements aimed at avoiding bottlenecks in its Hamersley iron ore division. The Eastern Range mine is Australia is a joint venture between Rio Tinto and one of China’s steelmakers, which will take all of the 10 million-ton annual ore output. The port at Dampier, utilized by Hamersley Iron, is experiencing shipping bottlenecks although port expansion now underway will allow two ships to be filled at once. Dredging began this month at the port.
Weather woes also compound shipping. When a 64,000-ton container ship is four hours late due to a storm, containers and cargo will sit until the next shift of longshoremen comes on. Containers will miss trains and storage costs will increase. Millions of dollars have been spent to expand shipping terminal hours, hire more longshoremen, and improve in-terminal efficiency. Logistical efficiency is considered the shipping industry’s biggest stumbling blocks.
As China’s economy blows hot and cold, shares of shipping companies sink on fears that there will be less need for container ships and bulk freighters. Shares of mining companies selling iron ore, nickel, bauxite and copper to China tanked last April on fears that Chinese officials trying to reign in the spending were about to stop buying raw materials.
China is already a world-class mining competitor. There are many undeveloped mineral properties in China and the former Soviet Bloc nations which are getting a closer look as China’s metals demand pushes up commodity prices. The development of these projects may ease supply pressures and moderate a further rise in metals prices