"This is happening now," Tao said. "It's just people are covering their eyes and refusing to believe that what is happening now is not just a cyclical story, but also a structural story."
Goldman Sachs this year joined other banks in calling an end to the commodities super cycle as China slows. The biggest consumer of industrial metals and iron ore and the largest oil user after the US is headed for the slowest full-year expansion since 1990.
China's economic slowdown deepened in October as industrial output growth and fixed-asset investment trailed estimates. Australia & New Zealand Banking Group last month cited slower-than-expected growth in China for slashing its price projections for commodities including oil, iron ore and nickel next year.
'Supernormal demand'
China's "supernormal" commodities' demand since 2002 will return to normal as the economy matures, according to a Goldman Sachs report in October. The bank expects China to take only its share of global GDP - about 13 per cent in 2013 - in mining sector demand, down from as much as 60 per cent at the peak of the boom. The trajectory of Chinese demand over the next 10-15 years will continue to call the tune, it said.
"China's metal consumption per unit of GDP peaked in 2011-2012, indicating infrastructure investment's contribution to the economy has started to shrink," said Ma Kai, a Beijing-based analyst with China International Capital Corp.
"We won't argue against the view that China's total consumption would peak in 2020s, but the growth is slowing."
Record level
BHP, the world's biggest miner, is adamant China will continue to underpin demand. According to BHP, the nation will retain its rising appetite for iron ore until at least the early to mid-2020s, remain the most important driver of copper demand and together with India account for growth in energy consumption by 2030 equivalent to current demand from the US.
"Chinese demand for iron ore and steel increased this year again to another record level," Michael McCarthy, chief strategist at CMC Markets in Sydney, said by phone. "The underlying demand story here is constructive."
About 250 million more people may move from rural areas to cities in China by 2030, bolstering demand for metals to meat, BHP told investors at a Sydney seminar last week.
"We have been fairly strong that the urbanisation of China will continue, that it will move from a more investment led-economy to a consumption-led economy," Chief Executive Officer Andrew Mackenzie said in a November 24 interview.
China's desire
While that transition may be complicated by China's desire to address climate concerns and improve the performance of its banks, "we take a long-term view, and we think it's steady as she goes," Mackenzie said.
Rio, the second-largest mining company, will also stand firm on its strategy of raising iron ore output, Chief Executive Officer Sam Walsh said last week in an interview. "It's important we stick to our game plan," Walsh said.
London-based Rio doesn't see China's steel production peaking until about 2030, an outlook shared by Wood Mackenzie, while Wolfgang Eder, chairman of the World Steel Association, expects output the nation's output to reach its zenith in as little as three years. Rio also said last week that it doesn't see Chinese per-capita electricity usage reaching levels close to Europe and Japan until 2030.
Continued Chinese iron ore demand means Vale, the biggest supplier, also won't slow expansions, Chief Executive Officer Murilo Ferreira said November 26 in an interview, insisting prices will rise from current lows as higher cost mines shutter.
Declining prices
If higher "volume doesn't come from our business, it's going to come from other businesses," Jimmy Wilson, BHP's president of iron ore, said in an interview broadcast yesterday by Australia's Nine Network.
There are signs the immediate outlook for China's economy is clouding. It's forecast to expand 7.4 per cent in 2014 and shrink to 7 per cent in 2015, according to a Bloomberg survey of economists. Last month, the central bank announced its first reductions in benchmark interest rates since 2012 to counter the slowest economic growth in 24 years.
The World Bank forecast this year that metals' prices were set to decline more than 6 per cent, following last year's 5.5. per cent drop, on new supplies and weaker Chinese demand. A Bloomberg Commodity Index of 22 raw materials fell November 28 to its lowest since July 2009, headed for a fourth annual decline, the longest slump since at least 1991.
'The China factor for the commodity super cycle is over,'' said Credit Suisse's Tao. "If housing, infrastructure are no longer the main drivers of the Chinese economy, I think Chinese demand for commodities is going to shrink."
- Bloomberg
