THE WEST AUSTRALIAN
Friday, 16 November 2012 15:10
Gindalbie Metals chairman George Jones says fears about China's economic slowdown are overblown and he believes demand for iron ore from the world's biggest country will remain strong, supporting a healthy price for the steel-making commodity.
Speaking to shareholders at the company's annual general meeting this morning, the mining industry veteran of more than 35 years said while China's growth had slowed, the numbers needed to be considered in a historical context.
He noted China's economy had grown 462 per cent in a decade, which in turn meant that 7-8 per cent annual growth today was going to have a much bigger proportional impact, coming off a much larger base, than 10 per cent plus growth did 10 years ago.
"The World Bank still foresees China overtaking the US as the world's largest economy by 2030, if it maintains an annual growth rate of 8 per cent," he said.
"And even if growth falls to 7 per cent and this process takes a bit longer, it's hardly a disaster of cataclysmic proportions - as some recent commentary seems to suggest."
Mr Jones said the Chinese economy was undergoing a fundamental transition whereby fixed-asset investment fell and the country made the all-important transition to a consumption-led economy.
He said he was confident that China's leadership understood the structural shift occurring in their economy and was actively planning to manage it.
"History suggests that an economy requires around 60 per cent of its population to be urbanised before a truly consumption-driven model can take off.
"That means that, even if the rate of urbanisation slows (a bit like the overall economy), there is still going to be around 200 million more people moving into cities over the next two decades.
"Accordingly, the Economist Intelligence Unit predicts that the number of cities in China with more than 10 million people - so called "megalopolises" - will grow from three in 2000 to 13 in 2020.
"That means that demand for steel and steel-making raw materials will continue to grow."
Mr Jones said the recent plunge in the iron ore price from about $140 a tonne to $85 was simply a case of heat coming out of iron ore, enabling the price to stabilise at more realistic levels.
"The Australian iron ore industry has recently demonstrated an ability to react quickly and effectively to this changing cost structure by putting its house in order and becoming more lean and mean," he said.
Gindalbie this week celebrated production of the first magnetite concentrate from its Karara project in the State's Mid-West. The project, which is a 50/50 joint venture with Chinese steelmaker Ansteel, began hematite production early last year.
Mr Jones said the Karara project would be seen as a test case for the wider magnetite industry in WA.
"This fledgling industry has the potential to generate enormous economic and social returns for the country, often in areas which are yet to enjoy the benefits of the so-called resources boom," he said.
"A greater willingness by Government to invest in infrastructure would go a long way to opening up new, undeveloped areas."
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