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Chinese economic growth and the demand for metals

Chinese economic growth and the demand for metals. China and the world economy Roberto Castello Branco EPGE, March 2011. Agenda. Growth skepticism Chinese role in the global metals markets Are commodity exporters doomed to poverty?. Growth skepticism.

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Chinese economic growth and the demand for metals

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  1. Chinese economic growth and the demand for metals China and the world economy Roberto Castello Branco EPGE, March 2011

  2. Agenda • Growth skepticism • Chinese role in the global metals markets • Are commodity exporters doomed to poverty?

  3. Growth skepticism

  4. The Asian growth path showed a sharp contrast with the experience of developed nations Real per capita GDP growth – developed economies Source: Angus Maddison, “Countours of the world economy, 1-2030 AD”, Oxford University Press, 2007

  5. Since the second half of the 20th century Asian economies have experienced unprecedented growth rates Real per capita GDP Sources: Vale and Penn World Tables

  6. Expansion multiples of GDP 1 1978-2007 2 1965-1994 3 1950-1979 4 1820-1950 Sources: Vale and Penn World Tables

  7. Gross enrollment rates in China Primary Secondary Tertiary school school school 1980 113 46 2 2006 111 76 19¹ ¹ 2005 Sources: US NCES and UNESCO

  8. Sources of China’s growth % Output Contribution of total factor productivity 1978-2004 9.3 3.8 1978-1993 8.9 3.6 1993-2004 9.7 4.0 Source: “Accounting for growth: comparing China and India”, B. Bosworth and S. Collins, NBER working paper 12943, February 2007.

  9. Chinese role in the global metals markets

  10. Vale is one of the largest companies in the world Vale position in the FT 500 ranking¹ 500 400 300 200 100 1 February 28, 2011 18 20 2010 42 2009 25 2008 ¹ Ranking of the 500 largest companies in the world by market cap – Financial Times, position on 31 March of each year 74 2007 117 2006 2005 153 2004 275 334 446 2003 2002

  11. A global company, with offices and operations on all continents… Vale in 2011

  12. ... and a global base of world-class assets Asset baseby geography Asset portfolio Iron ore & pellets Manganese & ferroalloys Nickel, cobalt & PGMs Potash & phosphates Coal Logistics Copper

  13. A large exposure to Asia: major operations and offices in the Asia Pacific

  14. Supporting Asian growth Revenues 2002 US$ 4.3 billion 2010 US$ 46.5 billion

  15. We are the only company in the Americas listed on a major Asian stock exchange Paris 2008 • New York • 2000 Hong Kong 2010 São Paulo 1943 ¹ with the listing in Hong Kong.

  16. China’s steel consumption intensity has been much higher than the US peak level not only due to accelerated growth but also due to structural characteristics Steel consumption intensity ton / US$ 1,000 of real GDP Source: World Steel Association, IMF, USGS and Vale

  17. China’s consumption intensity of base metals has surpassed developed economies Copper consumption intensity kilos / US$ 1,000 of real GDP Nickel consumption intensity kilos / US$ 1,000 of real GDP Source: World Steel Association, WBMS, IMF and Vale

  18. As a consequence, China has become the number one consumer of industrial metals in the world Share of China in global consumption of metals % Source: World Steel Association, WBMS, IMF and Vale

  19. Strong Chinese demand expansion has been the main factor underlying the sharp rise in base metals prices LMEX index¹ ¹ LME base metals prices index, includes: copper, aluminum, nickel, zinc, tin and lead Sources: Vale and Reuters Ecowin

  20. The increase in relative scarcity is driving the upward long-term trend for iron ore prices 1900 - 2009 ¹ prices in 2009 US$/ton, deflated by the CPI. Sources: USGS and Vale

  21. Despite Chinese efforts to boost iron ore output, it is increasingly dependent on imports Chinese dependency on imported iron ore Share in global iron ore seaborne trade 0.62 Source: World Steel and Vale

  22. In the past, in a less liquid world, Japan played the dual role of being the demand driver and financier of mining • Japanese trading companies acquired stakes in mining assets across the globe. • Japanese official financial institutions provided funding for project development. • Apparently, the Chinese are willing to replicate the Japanese experience to guarantee a steady supply of raw materials.

  23. Lessons from the Japanese experience • In the past there was no financial globalization. • Different models: private sector versus state-owned companies. • The Japanese investment was not sufficient to change the long-term trend.

  24. Africa is the new mining frontier World nonferrous exploration budget Source: Metals Economics Group, 2010.

  25. Are commodity exporters doomed to poverty?

  26. The strong global demand growth for commodities caused significant gains in terms of trade for Brazil Source: Funcex

  27. Commodity exporters can be rich Commodities and economic development ¹ 2009 Sources: IMF, Haver Analytics, PennWorld tables, MIDC-SECEX, StatCan, Statistics Norway.

  28. Natural resources and economic growth • Investment in human capital and infrastructure. • Quality of institutions. • Policies stimulative of private sector investment. • Flexible exchange rate regime. • Countercyclical fiscal policies.

  29. www.vale.com rio@vale.com Vale: a global leader

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